The Game with Alex Hormozi - How Many Products Should I Have | Ep 368

Episode Date: February 10, 2022

How would you like to pay? Today, Alex (@AlexHormozi) talks about how to maximize your revenue by narrowing down the products you sell and a little sales trick that will involve focusing on payment methods rather than the product list itself!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:(2:31) - Simplify product listing, maximize payment terms, focus on value.(6:23) - Let sales team focus on one main product for clarity.(8:01) - Focus on main products, maximize payment options, increase conversion rate.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

One of the goals of any business is to maximize the amount of revenue per customer you generate, right? 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. In this video, I'm going to talk to you about one of the questions that I get most frequently and that one of the problems that I have to solve again, most commonly in some of the companies that we take on in our portfolio. So one of the goals of any business is to maximize the amount of revenue, per customer you generate, right?

And a lot of times you want to have what's called like an accommodating buying curve. And so what that basically means is at every rung, right, if someone is wealthier, you want them to buy more and spend more money with you. And if someone has less money, you want them to still buy from you, but potentially buy for less, right?

And so this gives way to a lot of these crazy product and service listings where people have, you know, 100 different services and products they offer because they want to have the ability to serve everyone at the maximum degree. The thing is, is that most times that will create so much operational complexity and create so many little appendages, right, little sticky things that are stuck onto the side and bolted on and globed and duct taped onto a business that it becomes incredibly distracting for all of the employees because they're thinking about all these different things.

And here's a funny one. is that most times if your employees don't understand all the different types of things you sell and the price points you sell them at, your customers for sure don't. Right. And so one of the things that we will do when we're looking at a company is we will simplify the product offering and instead try and reach the maximum buying threshold per prospect by changing the payment terms. All right. Now, in a perfect world, if everyone had absolute information, and everyone was unbelievably well trained and you had a great infrastructure and all that stuff, then yes, the more products and services you offer in theory, you would make more money. But we don't live in that theoretical world most of the time, and most small business owners are not that good at operating, right? It's the number one issue they have. They're super disorganized.

They feel like they're spinning their reels all day. Their team completely has no idea which way they're going. They change things all the time, et cetera. And so in an effort to combat that, we have used this process. over and over again and it has worked very well. All right. So it is as follows. We sell two things.

All right. And I've done this in virtually every business that I've ever owned. We sell two things. Two products or two services. And this is once we're going from one to 10 million. All right. Zero to one million. You sell one product to one service, one avatar.

All right. That's it. One channel. One product. One avatar. That's it. All right. But once you're going from one to three-ish million,

and you're trying to go to 10, you introduce the second product line. All right? And so here's how this works. If you have two things that you sell, you'll have a front-in thing and you'll have a back-end thing. All right. Now, we can still have a massive accommodation in the buying curve based on the payment terms that we introduce. All right? So, for example, people will look at their monthly expense more than the total.

contract value. All right? That's a huge money hack. I'm giving you right now. This is a wealth hack. This is something that will make you a fortune in your life if you can properly understand this. People do not look at the length or the total contract they're signing. They will only pay attention to what is it going to cost me every month because no one is good with their money. All right? So they only look at the cash flow expense month over month over month and they just think, can I make it happen? Yes, cool, I'll sign. They don't think about the total. contract value. For you as a business owner, the contract value matters almost more than anything. Right? Right. So, I'll give you a quick hack on this. Total side note, tangent for you. Life hack.

Pro tip. If you want to extend the contract value that you have, I have a saying, which is the bigger the head, the longer the tail. All right? And so what that means is, the more you can get someone to pay up front and relative to the upfront cost of signing up or what they paid down, the lower their contractual recurring payment is, the stickier it will be. So I'll give you an example. If I had someone sign up for $99 a month for whatever, it doesn't matter, right? That, that price point might be medium sticky depending on the value that I have. Now imagine I had someone pay $5,000 down and $99 a month after that. How much more sticky would it be? Significantly more sticky. Right. Now, the beauty is if you have one of these upfront type payments, you can also use that to liquidate your ad costs, cover, you know, your

commissions for the salesperson, cover the upfront fulfillment in onboarding, which is going to cost more for a new customer than an existing customer. And so you can build all that in. If you know that the thing that you are selling has very high gross margins, then you can still have a lower cost as long as you know that the person is going to stay for a long time. And so based on how you structure the pricing, you can actually get some, you can use the pricing to actually get people to stick longer. All right. So pro tip complete. That is it. Moving back to the original thing that I was talking about. 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. So in one of our portfolio companies, we actually had this as a really in-depth discussion that we had to make a decision about, all right? And so they had a different, you know, mentor, person, whatever, advice, and told them that they should have three products, right? and they should have a low, a medium, and a high product,

and then based on what the salesman thought, the salesman would sell them the low, medium, or high. In my experience, it is not that effective. And that is because the salesperson can't decide which of these things they're trying to sell most of the time. And so what we have found is more effective is you give the salesperson the one dream to sell. This thing is going to solve this person's problem.

And we make it the most valuable thing that we're trying to sell because at the end of the day, you do want to solve the customer's problem, right? We do want to actually make sure that we're providing value. And so rather than having a diet, a medium, and a great, right, simply having one thing that solves all the problems, and then based on the customer's budget, we can decrease how they pay, all right? So hear me out. So let's say that we want to do a, this is a six-month implementation of whatever kind of solution you sell, right? If you have a six-month, month duration, you can have the person A, pay the entire thing up front. So that would be for

somebody who has the highest budget, right? Version two would be a split pay. Version three might be three payments, right, with at 20% higher, right? And then finally, you might have a, have a, you know, a six pay or whatever over that period of time, right? So one, two, three, six. Now, here's the cool thing. The more payment options you provide, the higher conversions are. That's proven. All right? So the more options you give someone to pay, the more people will buy. Period. Now, you might not make more cash flow because if you give your sales guy more options, then they might use the end of defaulting to the lower ones, right? But if you have one thing to sell, then they only have one thing to convince the person up because a confused mind doesn't buy. If you have too many options, the salesman won't know what to sell and the prospect won't know what to buy. And so I prefer, when I'm coming into a portfolio company, I'm thinking, what is this crew problem that we are solving with this business for what avatar. And we make that the main thing and we communicate it clearly in the scripting and the salesperson has clarity on what they are selling and they're always solving the same thing. And so the question becomes no longer which

of these things are you going to buy, but once you are buying, how would you like to pay? And so then the discussion is around what payment plan is best for them rather than what product is best for them. And so by doing that, you can get people to go. between different payment terms, that is not going to change whether they're going to buy. But if they're unsure about which product is going to best suit their needs and the salesman doesn't know because at the end of the day, he's just trying to sell the most expensive thing, then you'll have way more confused people who leave unsold. All right?

So this is a single tactic that you can use to execute within your business, which is why I'm a big fan of making offers. People cannot say no to is that you can focus all of your sales and all of your persuasion attempts on selling the one thing, which is getting them to say yes. once they say yes, we can we can accommodate their wealth and their budget based on the payment terms that we provide and if we have done, we have structured or offer properly, the offer in and of itself should already be very high gross margins

which means whether or not the person pays $1,000 a month or $100 a month, it's still almost all margin for us because of how we structure the thing that we are selling. And so we are able to capture higher LTVs by getting the people who have more money to prepay the thing up front. That is how we do it. And with those people, you'll be able to ascend into the second thing faster because they've already prepaid that thing. And then you can solve the next natural problem in another sales conversation rather than trying to pick all of the things in one conversation, which makes it incredibly difficult to do.

This is, just for everyone, again, a broad brush stroke of statements for most entrepreneurs who are not very good at operating their businesses. Her operations is not their strong suit and are below $3 million a year. All right. So anyways, Mosey Nation, there's a lot of people who are broke. I don't want you to be one of them, which is why I make these videos. Keep being awesome. I love you and I'll see you guys in the next fit. Bye.