Using Monte Carlo methods to make business decisions

Not sure what a Monte Carlo simulation is? Take a look at a great breakdown of what Monte Carlo simulations are.

Monte Carlo simulation methods make it possible to account for uncertainty in the complex and varied decisions you make in your business. I don’t suggest that one man startups with $1,000 a month in revenue start by using Monte Carlo simulations to analyze decisions. It’s a lot of complexity to add all at once and it’s important to really understand the methodology you’re using to make decisions. It’s probably more important that you understand the methods you use than that the method itself is incrementally more accurate.

If you’re familiar with 538 or Nate Silver from the last couple election cycles, you’re probably familiar with models that offer results similar to what you see from a Monte Carlo simulation. Results are in the form of chances a scenario plays out like building this new technology has a 65% chance to be profitable given these assumptions.

There are some big benefits to using this process in my experience. I have used the method for project management, scheduling, revenue projection, traffic projection, and predicting the impact of pricing changes.

Monte Carlo simulation benefits

Durable, reusable models

Once you understand the method and construct a model for a decision, it’s a highly reusable tool. If you take the time to build a decent equation or series of equations for a given decision then your model should stand the test of time. You need not recreate it to analyze future decisions. You will make some minor changes to a series of assumptions that govern the model and see what the impact is.

The durability of these models helps everyone reason about the impact of the inputs and it also lends itself to incremental improvement when you discover that you could model something more accurately or you need to add a variable. Even when you need to make adjustments, doing so tends to be cheap after the initial setup. My experience with high-low models or other discrete estimation sheets is that they are rarely reused.

Impact on team reasoning

Most people don’t reason about the world in a probabilistic way. We may think in terms of binary outcomes, but few people label most events with a likelihood of occurrence much less see all factors in that light.

Most of the time this is fine, but complex decisions and complex situations benefit from clearer thinking. Helping people working in teams see that there are a range of possibilities for completing each milestone and how those uncertainties sum into a project scheduling estimate can really change the way they see the process and even the rest of the world. Probabilistic thinking is a key critical thinking skill in a data driven world.

Improved estimation

Like any model you would choose to use, there is an increase in the accuracy of your projections independent of the impact on thinking. Part of that is the shift to thinking in probabilistic terms, but part of it is due to a better method of combining the numbers to find estimates. The common estimation method of taking an average or looking at a high and a low case come with some classic errors in statistical reasoning. Models based on these methods are quicker to create and may aid speed of decision making (a good thing) but they are inaccurate and will provide you with poor decisions in the end. Only you can decide when the tradeoff is worth the cost for speed relative to accuracy, but I would note that once you understand the method and have a model under your belt you won’t find the difference in time to create a model to be very great. The time cost is upfront in building your first model and understanding the method.

 

 

The psychological triggers behind the 15 most important pricing page features

Great pricing pages use customer psychology to guide people into purchasing the best plans for their needs with high conversion rates and extremely low bounce rates.

We have studied the best pricing pages we could find for small businesses and distilled the dos and don’ts of the trade. These pricing page dos and don’ts will also explain the psychology at work in both the positive and negative cases so you understand how to apply each technique to your pages.

  1. Do use an H1 that speaks to your customer

    Try to speak to benefits your customers care about. “Pricing” isn’t a headline. It’s a placeholder. Read more.


  2. Do use simple plan names

    Try to use easily understood plan names. Avoid potentially confusing jargon or industry terms.
    Read more. 


  3. Do use familiar iconography but be judicious

    Use universal icons where appropriate, but avoid introducing new icons to your audience. Read more.


  4. Do use button copy that connects to user intent

    Aligning button copy with user intentions reduces friction. Read more.


  5. Do focus on the important differences between plans

    Highlight the important differences that you expect customers value most highly. Read more.


  6. Do highlight common features in an “all include” section below the table

    Improve the plan table by factoring out the common features. Read more.


  7. Do feature a plan with color, size, and weight

    Show with color and visual hierarchy what you think is best for customers. Read more.


  8. Do use a unique button style or copy for your featured plan

    Using a unique CTA on your featured plan’s button further highlights it. Read more.


  9. Do include a below the table option to contact us or to reach sales

    Some users will have questions or prefer to speak with a salesperson. Make it easy. Read more.


  10. Do include an FAQ specific to billing

    Answer billing questions succinctly to parry customer objections. Read more.


  11. Do include a testimonial with a picture of a human

    Testimonials with a real person showing are powerful social proof. Read more.


  12. Do show what people, businesses, or segments benefit best from different plans

    Tell people what they should expect for each plan. Make it easy to identify which role they fit. Read more.


  13. Do offer to sell add-on products and services to customers on the pricing page

    One time offers at the moment of sale are the easiest way to do two critical things. Read more.


  14. Do feature trust markers on the page

    Guarantees and authority trust markers can improve page conversion. Read more.


  15. Do have a CTA on the bottom of the page

    The second most important element on your pricing page. Read more.

 

 

 

  1. Don’t use “Pricing” as your H1

    Your headline is the most important copy on the page. Read more.


  2. Don’t use “purchase” as your button copy

    Learn how to use button copy to entice users to click. Read more.


  3. Don’t use non-standard icons for plan features

    Icons can confuse more than explain if they aren’t universal. Read more.


  4. Don’t force customers to scan the table back and forth to see differences

    Clarity often means simplicity. Clarity can drive purchasing behavior. Read more.


  5. Don’t show all plans as equals

    All plans are not created equal. Understand why showing equal plans leads to bad customer decisions. Read more.

Cialdini’s Weapons of Influence

In his national best seller book Influence The Psychology of Persuasion (originally published in 1984), Robert Cialdini explores his six industry-defining principles of influence. If you have not read it, read it.

Cialdini starts out describing a single repeatable interaction between a turkey chick and its mother. When a chick chirps (making a “cheep, cheep” sound), its mother will come and take care of it. Turkeys are deathly afraid of polecats and they are also afraid of inanimate stuffed polecats. Yes, you are correct; turkeys are not the brightest creatures in the world. Interestingly, the “cheep, cheep” sound of a chick emitted from a speaker concealed within a stuffed polecat totally trumps the turkey’s instinctual fear of the polecat as the mother turkey will run to and coddle the chirping stuffed polecat. OK, the words turkey and bright should never find themselves in the same sentence.

Ever heard of Click, Whirr? It’s a thing; Google it. Remember that this book was published in 1984? Imagine a cassette tape loaded in a cassette player.


You press play (Click) and immediately you hear the mechanical sound of the tape rolling (Whirr). A chick’s cheep cheep chirp (try saying that 10 times fast!) invokes a repeatable automatic behavior (Whirr) from its mother. Cialdini continually uses the Click, Whirr metaphor when describing these “fixed-action patterns” invoked by a “trigger feature.”

Cialdini’s mission is to outline what he calls the weapons of influence as they are used mercilessly on us everyday. He is most interested in illuminating the most common and most potent strategies that are employed by anyone that wants you to comply with whatever their agenda is.

Reciprocity

Suppose a co-worker gives you a small insignificant Christmas gift. Suddenly, you feel an intense amount of pressure to return the favor. Click, Whirr – That is reciprocity. It is wielded by the gift-giver and it immediately provokes you to comply.

Commitment and Consistency

Suppose you agreed to meet a friend for drinks after work but you simply do not feel like it. However, you go anyway because you said you would. Click, Whirr – That is commitment. In this instance, it was wielded by the inviter which compelled you to do something (it does not matter how insignificant or carefree). Once someone has succeeded in gaining a commitment from you, this principle does the rest of the work. Be careful as this can grow into the sunk cost fallacy.

Also beware of the flip side of this coin: consistency. Suppose someone asks if you think some generic and generally widely accepted statement is true followed by a call-to-action question afterward:

Do you think murder is bad?
Would you support our effort to stop murder?

Do believe that children deserve to grow up in a healthy environment?
Would your support our effort to help the children?

If you answer YES to the first question, you will feel compelled to answer YES to the second question.Click, Whirr – That is consistency. Everyone perceives themselves to be consistent (none of us are hypocrites).

Social Proof

 

If you are like me, you have a healthy disdain for canned laughter (the on-cue loud and obnoxious laughter that is emitted from so many television programs every 15 seconds).  Click, Whirr – That is social proof. Social proof states that one strategy “we use to determine what is correct is to find out what other people think is correct.” Canned laughter is a modern day example of the baby turkey “cheep, cheep.”

Liking or Likability

Have you ever contributed to any charity a door-to-door volunteer attempted to sell you? Me either. Have you ever contributed to a charity your neighbor, friend, or relative shared with you? Have you ever bought girl scout cookies? Boy scout popcorn? Me too.  Click, Whirr – That is likability. So the next time that you are talking someone that is pitching anything to you and you discover that their mother is from the same town you were born in but knows nothing about this small town, think again… people will say anything to get you to like them.

Authority

Well, if the masses of social proof did not convince you, maybe the recommendation of one celebrity would? Because we all know that corn flakes are delicious because Michael Phelps (most decorated Olympian of all time) apparently enjoys. Click, Whirr  That is authority.

Scarcity

Once you perceive any resource is not infinite, you will be more biased to say YESClick, Whirr  That is scarcity.

There only 2 in stock – better order now! (scarce stock)

If I want it by Thursday, I must order within 15 hours and 46 minutes. I better hurry and make a decision! (scarce time)

Sure, you can wait to put an offer in on the house, but I do know there are several others looking at the house this weekend. (scarce time)

Final Thought

Don’t be a turkey. When that stuffed polecat chirps, beat it with a sledge-hammer or at least pay no mind and simply walk away.

There is a war out there, old friend. A World War. And its not about who’s got the most bullets, its about who controls the information. What we see and hear, how we work, what we think. Its all about the Information.

Cosmo (from Sneakers)

Now, armed with the awareness of the most popular and effective techniques that others are using to get you to comply to their wishes, you can better navigate life’s interactions. Maybe you can leverage these techniques yourself in your business?

Share the best or most surprising use of these principles you’ve seen recently!