The Game with Alex Hormozi - Cash Flow Consulting | Ep 216

Episode Date: June 26, 2020

You are always going to be paid for the value that you can create in the marketplace. Today, Alex (@AlexHormozi) shares with us the steps in the four quadrant model that helps you solve your cash flow issues and a math example that uses all these steps.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: (1:07) - Cash flow issues: acquire customers, increase value per customer.(1:58) - 1st step: add upsells to products, introduce customers.(4:32) - 2nd and 3rd steps: add-on services, offer 10% discount.(6:28) - 4th step: tie continuity into acquisition process, downsell upsell.(8:42) - Math example: upfront earnings in first 30 days.(13:20) - Research on customer retention: expansion revenue, Ascension.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

What we're trying to figure out is how much can we make up front in the first 30 days? And then what's the lifetime value of the customer? Welcome to the Jim Secrets podcast where you 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 that we have learned along the way. I hope you enjoy and subscribe. What's going on, everybody? I hope you are having a phenomenal Saturday. I've been very, very bad about my content lately.

and that is because I've been doing daily coaching with our community and so a lot of my creative output has been going there. But I wanted to talk to you about a cash flow process that I've been consistently walking through for the last couple months. Part of this started with the book that I'm still currently working on called Building a Better Mousetrap. And all of that is around how you can increase how much money you make per customer that comes into your business. And so the easiest way to know if you have an issue is thinking about this single question.

So I'm dealing with a lot of agencies on our software side. And what I'm essentially walking them through is a cash flow quadrant, but not the same cash flow project that you'd have in like Robert Kiyosaki's rich dad, poor debt, but a cash flow quadrant for how you can increase the value per customer. Because fundamentally, it's my viewpoint that if a business cannot pay $100 or $200 or $200 to get someone in the door, they don't have a marketing problem. they have a business problem, right? They have a cash flow issue.

And they don't know how to acquire customers and make cash flow up front. And so what I'll do is I want to walk you through the four-step process that I look at when I'm looking at a customer that's coming in the door. And that doesn't matter what they're coming in on. They could come in on a free offer. They could come in on a low-barrier offer, like a new client special or something like that. That's a $29 thing.

$21 doesn't really matter. Or it could be a straight-up value offer where there's no discount whatsoever, there's no free, no nothing, simply value being provided. So there's fundamentally the three types of offers that exist in the marketplace, free, discount, and value. But all of them can still lead to the same mousetrap, right? And so the first thing that I'll look at is products, right? Is there something that we can add on in this sales choreography when someone comes in

the door? So we can immediately add a product purchase to bolt on to an initial service package, right? So initial service package could be X period of time, X number of sessions, or a single session done at a discount or even a single session free, like an evaluation or whatever, right? The point is, and this works in any industry, right? You could come in and obviously in the gym and fitness space, the next natural cell for products would be supplements, right?

If you were in a chiropractor's clinic, the next natural cell might be orthotics or a special pillow or some sort of brace or whatever, right? It's a physical product and can immediately purchase from you at a very high margin, specifically to go with the service that you're also selling them. Another example might be if you're in the beauty space, you might sell masks or serums or creams. All of those things would be the first quadrant of how you can increase how much you make per customer, right? So let's say I'm going to use $100 to the average. Like if you can't pay $100 for every person who walks in the door in your marketing, then you're not going to have a business, right?

If you can't make $100 on a customer is coming in in a service-based business, you're not going to succeed and has nothing to do with your market. It's because you don't have this process down. So even if they come in for free, boom, you saw $100, $200 per person in product. All right, you've already broken even on that. But if you still want to really beat and dominate everyone in the market, you go to the second quadrant, which is how can I get them to add on additional services, right? So this might be introducing them to upsells within your core offer. So if you were a facility, the gym facility, for example, you might have your large group training,

but you might also have accountability, nutrition coaching, semi-private training, All of those things would be add-ons to the initial core offer. All of those increase the average lifetime value and investment of the new customer that's coming in, which allows you to make more money. That's in a gym space. If you were looking at a med spot, someone comes in for a Botox treatment or whatever, first thing you're going to do is try and get them to buy a package that's more of the same thing. But then also give them what I would consider a menu close, which is let me show you what other things we have to offer.

we have cool sculpting, we have filler, we have microderm abrasion, we have skin tightening, we have whatever, right? All of those things would be showing them what other services and offerings you have for that exact customer so that they can become more valid of you and that you can become more valuable to them, right? So cash flow quadrant number one is product. Cash flow project number two is add-on services. Number three is more from a, for somebody who's more capital constrained and wants to make more

money per customer up front, you can add on prepaid or financing. And so if you can, if you're in a really established industry, you can get financing companies to do this for you. Care credit is massive in the healthcare industry. People get, you know, get boob jobs financed. They get anything financed through care credit, right? If you can establish that in your business, you can get sometimes half or more to finance the packages that they may have purchased from you. So the third piece there is just simply asking and offering a 10% discount to get someone to pre-referral. And there's a key note there. You don't say paid in full. You offer someone to prepay. That's the language around that. To drag some of that revenue up front or sort of cash up front so that you can further liquidate the cost of acquisition.

Now, let me show you how powerful this is with a single math example. If you have 10 people who walk in your door and let's say you sell five of them, all right? And one of those five does a prepay on your service. Right. And let's say everybody else averaged out to $500. for the initial purchase, but one of them paid $2,500, right? That one $2,500 sale increases the average ticket from $500 to $1,000 across all of the customers that you had in the door. So even if a small percentage take that offer, it can be a massive increase in the average order value, average cart value, average cash per show, whatever way you want to call it, and can change the game in terms of how you can acquire customers and beat out the people in your competitive space.

All right. So I went for, I've said three so far. So product is number one, add on services number two, getting people to prepay for services that are happening in the future, number three. And then number four is continuity. So is there a way that we can also tie continuity into this acquisition process, right? So I'm going to not do the gyms because everything I do is about gyms. So I'm going to try and apply this in a different setting. So let's say we have, I mean, a medspa is an easy one to use because there's brought it up. So someone comes in for a discount, Botox, right? First thing there, they might not make that the surgeon or the meds spot center

might not make a lot of money in that first transaction. They might make a couple hundred dollars, but that should at least cover the cost per show. The next thing they're going to do is give them products, right? The products that are going to go with that might be the serums, the max at home, because everything that someone's coming in for there wants to look younger and more beautiful, right? And so all the products that would go along with that would immediately be sold from like a take home kit standpoint. If you want to maintain these results or extend these results, you should have these things. The next would be our menu close, right?

Do you want to do microdramarararation? Do you want to do the cool sculpting? Do you want to do filler? Whatever, right? Then we're going to prescribe a package that's going to be their total beauty package, which might take six months or whatever to get them to where they want to be. And then the continuity that we're going to tie into this is a process that I like to call downselling the upsell.

All right. And so what that is is typically you want to have people pay more in the beginning because it costs more to acquire a customer, it costs more to onboard a customer that does to maintain a customer. And so if we're getting more cash up front for these customers, they're going to be more invested in our process. And it also allows us to cover the overhead of getting them activated, getting them onboard and giving them a great experience. But then you can simply offer them the same thing that they've been getting, but just on a recurring basis and do it at a pretty decent discount. And most people will jump at that offer. What it does is then

locks that person into regular recurring cash flow for the business and then massively extends the lifetime value of the customer. Hey, Mosin, A, Moza, nation, quick break just to let you know that we've been starting to post on LinkedIn and want to connect with you. All right, so send me a connection request and note letting me know that you listen to the show and I will accept it. There's anyone you think that we should be connected with, tag them in one of my or layless posts and I will give you all the love in the world. All right, so let's get back to the show. And so I'm going to walk you through one single math example and then I'll sign off. But hopefully you can look at that quadrant within your existing sales process and say,

how can I implement each of these four things into the sales choreography in my business so that I can outspend my competition so that I can spend $500 per person who walks in the door, $1,000 per person who walks into the door. And the reason that's so important is because if you can get that cash per show high enough, then you can spend on multiple different channels of acquisition. You can have referral partners. You can have you can have cold traffic. You can have affiliates.

You can have all of these different venues. You can have direct mail. You can have social media stuff. Like all of these different venues cost different amounts, but at a certain point, all of them become affordable. And that is what unlocks the huge amounts of growth that are available for a business owner. And it comes from the back, not the front.

And so everyone thinks they have a marketing problem, but typically it's because they have a monetization issue. They're not good at cash flow or choreographing the money that they're they're making per customer. So to bring this all home, what we're trying to figure out is how much can we make up front in the first 30 days? And then what's the lifetime value of the customer? The cash value for the first 30 to 60 days is going to be important for how you spend money

to get them in the door. The lifetime value on the back end is going to be how much money you're going to be able to extrapolate and how much revenue you make per month based on your sales volume. So for example, if you sell 20 people every single month and you know that your lifetime value per customer is $2,000 total, and you sell 20 customers per month total, then it means that your business should cap out at 20 times 2000, which should be $40,000 a month. And that's an easy way to back into, like if you feel like your business has not been able to grow, it's because one of two numbers, either you're not, you're not capturing enough on

the back end or you don't have a big enough inflow. That is it. That's all there is to it. You can massively simplify this. Now, if we're looking at trying to back into that number, so let's take a business A that can only pay $100 per show, which means they're not making a lot of money, and then option B is we've got a business that can pay $1,000 to show. Let's see if we can reverse engineer $1,000 per show into a business model. So if someone comes in and let's make it an attractive for an offer, let's make it a $19 new client special, whatever, right? evaluation. It doesn't really matter what industry it is. It works the same way. So someone

comes in for a $19 thing, they show up. From there, let's say that we know that we're going to close half onto the next service package, right? Now that next service package, let's say the average is going to be $2,000. Now, that's going to be over an extended period of time. Cool. Let's say that our minimum that we can get down is $500 because that's what we say is minimum in order to buy. And that's why we're closing half and not 100%. The next thing we do is, we sell $200 per customer. Now, if $2,000 was with the package was and we closed half, we're at $1,000 in lifetime value, all right? Just from that first transaction, half times $2,000 is $1,000. Now, of all those people that say yes, now let's say we sell each of those

people $200 for the product. All right. Now we added $200, now we're at $1,200 lifetime value. Then let's say two out of those five people that we sold, for example, decide to, add on an additional $1,000 for the services, all right, from your other service offerings that you have. All right. So now we've got two-fifths times a thousand, which would be $400 that we add again to the customer. So now we're at $1,600 per show, all right? And then again, on the back of that, we say, hey, we know that from every of the five that we have, we can get, let's say, another to sign-ons. continuity at $200 a month and we churn out at 10%, which tax another $2,000 onto two of those

customers. All right. And so that would add yet another $800 on top. So you'd get $2,400 per person that walked in the door for a free offer. All right? That is how you can beat everyone in your marketplace is that you consistently execute the process, right? that means every single time you have a choreographed handoff between service A or service one and sale number two.

Sale number two and cell number three. Cell number three and cell number four. And if part of you is like, man, I feel like I'd be selling all the time, yes is the answer. But the secondary correlate to that is that if you look at the research that exists on how to maintain a customer over the long haul, it's about expansion revenue. It's about ascension. It's about selling them more things over time so that they can continue to be reminded of the value that you provide. Because over time, people always want new things. And so it is your duty if you believe in the value that you provide to make the offers to those people and communicate that process in a seamless way so that every part of your business knows, my objective is basing the baton from point B to point C, from point C to point D. And all of that choreographed process ultimately results in a front end that allows you to spend whatever you want per customer because your backend is so strong.

And that process, that cash flow quadrant is the reason that Jim Launch has been able to stay number one in this industry, despite the saturation, despite the charlatans, despite the many people who would claim that they're doing the same thing, but they're not because they don't execute that process. And at the end of the day, what you are always going to be paid for is the value that you can create the marketplace. We've been able to choreograph that process for the businesses that we serve so that they make more per customer and so that their customers are better served. And that's ultimately what you have to do. What we have to do as entrepreneurs and business owners is how can I serve my customer in the highest and best degree ever? And how can I do it in as seamless a way as possible so that I can have as little operational drag as possible so that I can outmarket my competition and continue to play the game. anyways, that cash flow quadrant is how I think through the choreography around creating selling systems so that our gyms and our businesses can beat out their competition.

And I would encourage you to print that out, put it somewhere so you can think about every single sales process that you have through that lens. And I guarantee you that you'll make more money. That's what when I do my consulting days and I sell consulting hours, this is the process that I walk those business owners through, and nine times out of 10, we can almost double or triple the amount that they make for customers simply following that process. So I hope that was valid before you. I hope you have an amazing Saturday.

Execute that, make more money, serve at a higher level, and crush it. Lots of love. Get you soon. Bye.