The Game with Alex Hormozi - Affiliates of New Business | Ep 284

Episode Date: March 16, 2021

Let’s shake on it! Today, Alex (@AlexHormozi) talks about the four reasons why he really likes affiliate relationships a lot, dives into each reason, and how they can further improve business.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:43) - Product lines, upsells, downsells, and their differences(2:27) - Reason #1 - Less opportunity costs, avoid early mistakes(3:22) - Reason #2 - Benefit from value, stack offers, introduce core offer(6:01) - Reason #3 - All profit, earn revenue through negotiation(7:02) - Incredibly flexible, find alternative solutions to satisfy clientsFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Here's four reasons that I like affiliate relationships a lot. Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. What's going on? Everyone, happy Thursday. Wanted to rock and roll with you and give you a little breakdown of one of the hard decisions that I have to make early on in business, which is, when do I start referring business out

for services and products that my clients want from me? And so this is difficult because obviously it's a huge amount of time and money to start another business, which is different than having another product line. So I'll differentiate that first, and then I'll give you the four kind of reasons that I do like affiliate relationships instead of starting a new business. So a product line is serving an existing customer at a higher or lower level, right, to solve a similar need, the same need in a different way many times, right? And so this, like an upsell, which is different than a cross-sell. and upsell is a higher version of the same thing. So if somebody was doing group training and then we sold them personal training, that would be a higher version.

That's an upsell, right? A cross cell would be going from, you know, group training to nutrition coaching, right? That's a cross cell. Let's say it's the same person solving the same need of getting in shape. It's just another vehicle, right? So those are, that's the difference between upsells and cross cells, right? Now, let's say I wanted to really get into, I don't know, food, prepping, right, or apparel, something like that, whatever. That's like, that's like a couple,

because one is, like both of those first examples I gave are service-based businesses that use the same resources, right? And this is key, is that if I'm creating a new product line, right, I'm using the same resources I already have. Now, when it becomes a new business is when you have to have new, new people, right, new resources and new product lines or capital expenditures, meaning you spend money to start the new business. Because, I mean, fundamentally like a business, like a business becomes over time, the bigger it gets a business within many smaller businesses within it, right? That's how it becomes bigger, right? Now, I'm talking more once you cross 10 million plus, but that is ultimately how it becomes. But the point of this is actually

not about the product lines. But when should you do that versus when should you find a partner? And when I say partner, I mean like somebody already has a business, not getting into business together and becoming a referer of business, an affiliate. And so here's four reasons that I like affiliate relationships a lot. One, many times the opportunity cost of starting that thing might be very high, right? As in like I might be making more money from my existing thing than I might make from building out, you know, some new solution, right? And I've made mistakes with this in my life. Like, for example, we have a meals company and it's really not that profitable. Like, I mean, it's, it's, we make basically nothing. I mean, it's almost a nonprofit for us.

us. And so, you know, I'm happy that we can provide that, you know, service to our, our gyms and their clients, which is great. But if I could do it all over again, I would have just said, go find somebody local and just not try to solve that problem, right? Or instead, I would have partnered with a national company and said, you know, give us a discount or a referral commission in order to make this introduction, right? And so the first one, the first reason that I like affiliate stuff is that I have no cost of providing the value, all right? Number one. Number two is that I can benefit. from the value by stacking a ton of offers of other people's businesses just for me

introducing them into my core offers. So let me give you a different example. Let's say I was a chiropractor and I had a $2,000 pain, pain release thing that I sold people and they came in for 12 weeks or 18 weeks or whatever, right? Now let's say I think to myself, well what other things that someone naturally need? Well, they might need, let's say food prep stuff, they might want massage therapy, they might want orthotics, they might want a better mattress, they made, all of these different things that they would, that they would naturally buy as a consequence of starting to work with me, right? So what I do, being the enterprising, you know, chiropractor that I am, I go to each of those businesses and I negotiate a favorable deal because then I take a group

discount of all of my customers and negotiate on all their their behalf. And so by doing that, I can guarantee get them a better deal than they would get on their own, right? Because like most businesses would give something away just to get a customer, but I'm going to give a lot of customers. So I want something even more than that, right? And so there's two things that we can do here. is I could say, I'm just going to use a simple example. Let's say I got a massage therapist to give me two free massages for every, you know, just so that I can send someone over with an attractive deal, right? Or half off four massages, who gives it, you know, whatever, right?

The thing is, is I can bundle that thing and say that's a real, true $150 value, right? $150 that no one is going to question that it's worth that, right? And then if I take the, you know, a free pillow from the mattress place to get people to go in, because they probably give something like that away. Then I'll have this orthotic pill that I get for free. Right. And on top of that, I have the shoe company that gives me the insoles that are moldable, but then they have better ones that are customized, whatever, right?

Each of these things. And so now when I'm presenting my final offer to my customer, I have all of these things lined up that cost me nothing, right? And not only that, I can negotiate with them not only to get the discounts, but to also get paid for every person that I send their way using this promotion. Right? So not only do my customer's benefit, I can sell my entire package is more expensive. because of value, right?

My customer, I then get paid from the business, right? And my customer gets a discount. So it's literally just like everyone wins, right? And so that is the second reason that I like affiliate relationships. Hey guys, love that you're listening to the podcast. If you ever want to have the video version of this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff. Sometimes it can help hit the brain centers in different ways.

You can check on my YouTube channel. It's absolutely free. Go check that out if that's what you want. are into and if not, keep enjoying the show. The third reason is that it's all profit. All right. And so if you think about how much you make from your business, right? Some businesses run at 10% or 20% margins. Many times you can negotiate far more than that for an affiliate relationship. A lot of times you can get 30, 40, sometimes even 50% of total revenue. Depends on the type of product and cost of fulfillment. But for many times you can get that. And when you think about how much

you make from your own business, sometimes it makes more sense to just be an affiliate and get that revenue. Like for us, we make about a million dollars a year pretty much passively, just introducing businesses to partners that we would do anyways, right? We think they have the best product. And so we just reach out and say, hey, before I go send all these people to you, because I think you have a good product, like, what kind of deal can I get them and what kind of deal can you get me? Right. And so I like meeting in the middle. I like saying, let's say if we get 20% off, all my customers get 10 and I get 10 to. And so everyone wins, right? And this is very common, you know, practice. If you look at influencer marketing, when they say give 10% off,

they also get kickbacks on that. And so that's the third reason that I like affiliate relationships. The fourth reason is that it's incredibly flexible. And so what I mean by that is if for some reason something changes, let's say I was with the massage person, right? They gave me four massages for my clients. And I find another massage person who's better, right? Because I'm an affiliate, I can just switch where I'm pushing my clients.

And there's no problem and I keep my client's needs first. And so it makes it really easy for me, right? Now, counter that with an imaginary situation where I owned a massage sub-clinic underneath of my chiropractor. I use one of the offices for that, right? This is an example. Now, if I didn't have the best product, which happens sometimes because maybe the massage therapist that you hired isn't that good or whatever, right?

You then have this kind of like moral conflict and this cognitive dissonance where you want to believe that what you provide is always the best, but you have tangible proof that there's somebody better down the street. and you're not allowing your customers to do that. And if I think about how much I'm paying the massage therapist and I've got cost, I've got insurance and all that stuff, compared to what I could just get from getting, from referring the business down the street

and getting paid on that, sometimes it just makes more sense to have the flexibility on top of having the best product because it ensures that no matter what, you're always serving your clients in the best way. And so those are the four reasons that I really like having affiliate relationships. I can provide more value. It gives me more flexibility.

It's all profit. and ultimately I can I can provide more to my customer than I otherwise could at no cost to me. And that's the beauty of this, right? And so, anyhow, I sell that to say, all that to say, don't start into the business, make a relationship, still solve your client's problems while still being able to focus on your core game, and more times than not, that will be to your benefit. I'll give you the one quick exception, which is like if you are sending a disproportionate amount of revenue, building a huge amount of enterprise value where the amount of enterprise value from the new thing

that you are sending surpasses your existing vehicle, then it makes sense at that point that you would want to swallow up that revenue stream. But many times that is not the case, and it just would benefit you to just simply take the small kickbacks and commissions that they send your way for making the introduction. So otherwise, hope that made sense. Lots of love. Keep being awesome. And I'll get you guys on flipside. Bye.