The Game with Alex Hormozi - Cold Outbound Sales Magic | Ep 438

Episode Date: September 22, 2022

You're letting people know one-on-one about the stuff that you sell. Today, Alex (@AlexHormozi) talks about how you can possibly leverage referrals and affiliates, an interesting story about cold outbound sales, and how you can profitably grow, even if you're capital constrained.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:(1:28) - Cold outbound strategy: Affiliates to customers, cost-effectiveness emphasized.(2:52) - Math breakdown of two girls selling energy drinks at the beach.(3:58) - Vital role of a good product; giveaway strategy for virality.(6:51) - Marketing efficiency key; benchmarks like LTV, CAC ratio crucial.(8:43) - Cold outbound applicable to various businesses; direct communication methods.(9:44) - Consider ideal cash flow of acquisition; aim for quick returns.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

We want to be able to ideally cash flow the acquisition, which means that in the first 30 days of the customer, we want to be able to make back the cash that it costs us to acquire them. The wealthiest people in the world see business as a game. This podcast, The Game, is my attempt at documenting the lessons I've learned on my way to building Acquisition.com into a billion dollar portfolio. My hope is that you use the lessons to grow your business and maybe someday soon, partner with us to get to $100 million and beyond. I hope you share and enjoy. There are six ways to get customers. The first four ways are the core four ways you let anyone know about any. So you let people you know one-on-one about the stuff you sell.

You let people know publicly about the stuff you sell. You let people you don't know privately about the stuff you sell, and you let people know publicly about the stuff that you sell. From those four ways, you can leverage the other two ways, which is referrals and affiliates. You have to do those four things to get customers, or you have to do those four things to get affiliates. And then those affiliates, in turn, do those four things.

Now, when you let a stranger one-on-one know about the stuff that you sell, that's called cold outbound. All right. And so what I want to talk about this video, is cold outbound and a really interesting story that just happened. And so I've been of the belief that those four methods work for any business anyway, no matter what. Now, cold outbound is a little bit more costly of a way of acquiring customers. So most times it tends to be B2B businesses that sell higher ticket that can afford to pay people to do outbound, et cetera, to get customers, right? And I had this belief broken for me because as a consumer or direct-to-consumer business, physical products,

maybe smaller ticket, higher-volume business, most times anyone would use cold outbound would, be to get affiliates and then there's affiliates get customers. So you can afford to get affiliates because affiliate is worth more than a single customer is. Does that make sense? Hopefully it does. Now, I was thinking about, I was like, but marketing always works. So I just have to think about an example where it would be real. And so Layla and I were walking on the beach and we saw these two girls who, I was like along the boardwalk and these two girls were pushing a cooler full of energy drinks. You know, the two cute girls, remember Red Bull did this back in the day. And I thought about it for a second. I was like, okay, they're handing out.

cans of energy. And there has to be some financial ROI on this. So let's do the math. So I go up to the girls because they're like, hey, do you want a thing? I was like, actually not really, but let's talk. And so I asked them, how many cans do you guys give out a day? Which is like a thousand. It's like, okay, you give out a thousand cans. How many hours does that take you? Do you like six hours? And the amount that they make per hour is about $20 an hour. And so figure six hours is $120 each, is 240 with taxes, maybe $260, $2.70, whatever, right? Okay, so there's $270 in labor. Now, how much does a can of energy drink or a can of whatever soda cost? Well, believe it or not, cans of soda on their own cost very little. It's actually mostly water, and then there's just the cost of the can.

So you're talking probably like 25 cents to make a soda, all right? Probably less than that, like Coca-Cola costs less than for them with that. But let's just use 25 cents for the example. All right. The biggest cost for a consumer product, especially the lower ticket one, is the shipping. So the cost for them to get the soda to the gas station is the vast majority of the cost. The cost of the product is very little, right? So when they give a thousand, they can ship a pallet all at once to one location or pallets all it wants to one location. They stack them in a warehouse.

And then teams of two-girl teams that look cute that can get attention, get these coolers full, put a thousand cans in and have to give them out. So let's do the math. So if they give out a thousand cans in a day, which is what they said, a thousand times 25 cents, it's $250 in product. And let's just round and say it costs $250 in labor. So it's $500 a day is what their cost per day of this one single two-person team is. Now, let's try and figure out the return on this for them.

So if they can, and we can also figure out the cost per can hand it out. So if we're giving out 1,000 cans and it costs 500 bucks, then it costs 50 cents to deliver a can to a potential customer. All right? That's what our cost is. Now, let's think about the lifetime value of somebody who actually gets the drink and enjoys it. Right? So this is where having a very good product is so important. Because if you can give a can away for free of the thing that you sell and know that X percent of people will buy again, then you have an incredibly viral product. 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 are into. And if not, keep enjoying the show. There's a good friend of mine that owns a bar business. Actually, a acquaintance more than a friend, but anyways, he owns a bar business that gets 63% of people who get their first order to buy again, which is crazy high for a consumable. All right. Now, I'm going to use a much smaller version of this because it's free and there was no purchasing.

And let's just say four out of 100. So 4%. All right. One out of 25 people who get a can for free are willing to then consistently buy cans. Now, a case of this stuff is about 30 bucks for 12 cans. Okay? So if you wanted to buy a month's worth, it would be 30 times two and a half. So $75.

So $75 a month if you drank $1.00. one in a drink in the morning every morning, which is what a consistent user would take. Right. Now, remember, our cost per can is 25 cents. Now, the shipping of a really expensive, really expensive because it's heavy, 12 cans might be somewhere like five bucks-ish, direct to the consumer. Okay. So if we get $90 for those 30 cans, right, and it costs us $15 in shipping plus 30 times 25 cents, which is $8-ish. So $8 plus the $15, we've got $23 on $90.

So we've got the rest of that, which is the margin. So we've got $67 per month, and let's say the average person stays for five months, which is $335. So let's say that's the LTV of a customer lifetime. Now, we handed out a thousand cans, and we said only 4% become lifetime customers. So that means that we have 40 people who would then become 335. $35 of LTV. $40 times $335 is $12,000, roughly, right? They spent $500 for that.

Does that make sense? Let's say it was one in even less than that, right? Like, let's say the LTV is $100. And they only get one out of 1,000 to, I'm sorry, 1%. So 10 out of 1,000 people to become that type of customer. Well, then they get 10 customers to give us $100 an LTV, which means they get $1,000 on 500. Right? So the question is, at what point?

does it make sense to do this, right? And I use this more of an illustration to show you that there is a zillion ways to let people know about the stuff you sell. All right, there's never a lack of attention or traffic that's out there. You just have to be able to afford it. Marketing always works. It's just a matter of how efficient is it. If every person in the world literally just saw the name of your company and nothing else, you would make money. Period. A certain presenters of people would come and buy. Period. The problem is, it's hard to reach. every single person in the world. So marketing is not whether it works or not, but how well did it work? And so it's good to have benchmarks for these things. And this is one example that's in the Leeds book

that's coming out soon. And if you've ever watching this and maybe it's already out and by the way, you can check it out. Anyways. So since it's a matter of efficiency, we need to have benchmarks. And so for me, I like to have a minimum of a three to one LTV to KAC ratio. So that means the lifetime value of the customer in gross profit, not revenue. Because if it costs me $90 to a $500 thing, I can only use 10 to market it, right? Just think about that. So it's just on the profit margin that you have. That's what you have to use your calculation for.

So you need a 3 to 1 LTV to KAC ratio. CAC is cost of acquiring a customer. So if it costs me $100 to get a customer, and I have to make at least $300 in LTV for it to be worth it because I have to cover the cost of acquisition and then with the remaining $200, run my entire business, and still have some left over for profit.

And so they've done a lot of research on this, and so 3 to 1 is kind of the minimum of LTVs. to CAQ ratio that is required for profitable growth. And so it's good to have that benchmark. Now, me personally, I tend to shoot really high. I like to have 10 or more because I like having lots of profit and I want to make lots of money while I grow. Right. And I genuinely believe it's a belief thing where like if you believe it's possible it is. And so people, I think they have their like people, like people fall to their standards. Because three to one has been accepted, a lot of people just go to three to one. I think you can have 10 to one and then keep going, right?

And you just fall to that level of your standard. In the book, I talk about how my, my lifetime return advertising is 36 to one. Right now it's. continue to improve, and now the numbers wouldn't make sense because of the deals that we make. But fundamentally, if you believe it's possible it is, you just have to think about it more cleverly. All right? And so I want to use this example to show you that cold outbound specifically works for any type of business. You can use it for a direct-to-consumer business.

It can be knocking on doors. It can be handing out cans. It can be cold-call and cold-message. It can be direct mailing people. It doesn't matter. Whatever it is, it's cold outbound. You're letting people know one-on-one about the stuff that you sell. And if you do the math, you can make it work.

And just to clarify on this math real quick, it would cost $75 if we're able to buy two and a half cases, which we can't. So we have to buy three cases to get our months' worth of 12 cans because 12 plus 12 is 24, plus another half case gets us to 30 for the month. And so 90 is what I did this math on. And it's more important to think about just what the math is just to get to the LTV because that's the only number we really care about. This is just back of NEP. And the reason I give the second example after that with the $100 is that it doesn't matter. It's just, do you understand the thinking process, which is, this is how much it costs for me to get a new customer,

and this is how much I make per customer over the lifetime of them being with me. That's the big thing that we need to look at. And as an added caveat, we want to be able to ideally cash flow the acquisition, which means that in the first 30 days of the customer, we want to be able to make back the cash that it costs us to acquire them. So if it costs me $100 to get a new customer in my business, I want to create an excess of $100 of net-free cash flow back to me to cover the expense. because if you can do that, then you can take a credit card, you can borrow the money for 30 days,

you can get a customer and pay back the card so the customer was free, and now you have no money that's owed and a customer that you can sell for the rest of your life. That's how you can profitably grow even if you're capital constrained. And so if you literally just figure out that part of the equation, acquisitions no longer the bottleneck in your business and it will be something else further down the pipe. And that's what we try to do with every business that we have in the portfolios. How do we make it so that cash is not the restrictor of growth, solve for number Number two, now that we've eliminated cash as the growth, we can grow as much and as fast as we want, which then means something else to become our barrier, and then we attack that.

So let's say I was going to say, I'm going to spend $1,000 a month on Facebook ads. I spend $1,000. I don't have $1,000 back. From those $1,000, I sell $10 people for $100. That wouldn't work because I have a cost to fulfill, so I would have less money. Even if the LTV was $10,000, but if I made $1,000 back and my cost to fulfill to say it was $500, I only make $500 back as my net free cash, which means I'm down 500 at the end of the month. Right.

So I need to fix my pricing, fix my offer such that on that first 30 days of transactions with a customer, I have at least the cost to acquire them in net free cash to me. So the metric I use there is called 30-day cash, which is how much net-free cash does a customer spit off in the first 30 days so that I can pay off a credit card to acquire the customer. And then at that point, you don't need to even use your business's money to acquire customers. You just have a revolving credit line with the credit card company. And the more you spend, the more you pay back, the more they'll bump your limit.

All right. Keeping awesome mosa nation, lots of love. And I'll tell you guys. Bye.