The Game with Alex Hormozi - ✅How To 2.5x the Profit Per Member ✅ | Ep 139

Episode Date: July 26, 2019

"The strongest profit lever in your business is price. And the way to get the price is to add more value." Today, Alex (@AlexHormozi) talks about the most powerful profit lever in business: pricing. He shares data-backed findings from Patrick Campbell, who owns two SaaS companies, and explains how adding value to existing services and implementing upsells can significantly increase profitability without fundamentally changing the business model.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:(1:46) - Double customers, double everything already there.(3:51) - Pricing is a more powerful profit lever.(5:35) - Scale pricing without incurring service costs.(9:11) - Enhance value, decrease churn, increase profits.(11:36) - Add a single upsell to core for extra profit.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Happy Thursday, everybody. Hope you guys have an amazing day and start or end to your workweek. If you're an entrepreneur, it's just the middle of anything because you're working all the time. Anyhow, the strongest profit lever in business and how to use it. So a lot of times, I mean, I like talking about this stuff. It's probably my favorite topic in the world. And I feel like I've made a few more mindset videos lately. So I want to make one about the monies.

So I've been in a deep, deep, deep dive reading books. And I've come into business love with a man named Patrick Campbell. He owns two companies, one called Price Intelligently, one called Profit. Well, they are SaaS companies. And Price Intelligently is a company that just reviews and just works on tons and tons of data around SaaS companies. And the reason that I think it's really interesting is that there are so many principles that he's been able to back with data looking at 10, 11,000 different companies in terms of payment structures and just tons of different data that he used that I thought I would share some of the findings that I've had with you. So when they did an analysis of all the blog post written specifically towards SaaS businesses, which is software as a service, if you don't know what SaaS means, and for many of us, we are in the

service business. So a lot of the findings, the majority of them apply directly to what we do. And so, anywho, many of you or maybe some of you've heard of the genie in the bottle story, but basically, you know, if you rub a lamp and you ask you genie, you know, double my business. And he says, okay, there's three ways you can do it. One, we can double the amount of customers. Two, we can double the, you know, decrease your turn by half. Or three, we can double your prices, right? And the question is, which one would you choose?

And he was able to back with data exactly what we find with that original scenario. So for those you don't know, when you double your customers, you pretty much double everything that's already there. And usually profit will go down a little bit because there's additional costs as you scale, right? And so if you were doing, let's say, $10,000 a month, and you had $2,000 a month in profit. If you doubled to $20,000 a month with twice as many customers, you would technically have $4,000 a month in profit,

but as some of you may know, sometimes costs can increase as business goes up. So you would be at $4,000-ish in profit, right? So you doubled across the board. If you doubled the or decreased the churn by half, so you doubled your lifetime value in duration, what happened is you'd be able to spend twice as much in acquisition because each person is worth twice as much. but so overall you would end up to the same number in terms of how much profit you'd make but

you'd have an additional benefit from the fact that you wouldn't have to spend as much on marketing or you could use that to lever and double down and grow that way because you can spend twice as much on market all right the third door which is double your prices right if you took the original example of $10,000 a month with a 20% margin and then you doubled it to $20,000 a month but you had the same cost of fulfillment which was the 8,000 right the 80% from the original number then you'd go from $2,000 a month to profit to $12,000 a month in profit. So that's a 6x increase in profitability by doubling one number. And so he found when he was looking at all the data from 11,000 SaaS companies,

and so his company basically works on the processing side to help collect revenue that's lost for SaaS companies. And so he has a direct tie into how much revenue they're making. So he has all this amazing data to pull from. And so if you increase, if you do a little, a 1% increase on any of these three metrics, either 1% decrease in cost of acquisition, 1% increase in price, or 1% decrease in churn. The response was, let's say, 1x for acquisition in terms of how much it would increase the profitability, 2x for decreasing the turn, and 4x for increasing the price by 1%. And so it just showed how much more powerful pricing is to profit within your business. And so the reason that I think this is fascinating and why this can be relevant to you is that

if you're looking at your business, right, we know that for gyms, the profit points for a larger training center, typically in order for it to be profitable, $167 a month, which is $39 a week, tends to be the point where you actually can make a real amount of profit in the business, right? And so we know at Jim launch that we add additional services or different value in order to retain customers, right? So we add a lot of the accountability features in, handwritten cards, you know, checking in every other week, all that kind of stuff, right? And so at a very basic level, if you don't even think about, you know, online businesses or anything that stuff or any of the hybrid stuff that I've talked about, if you were to simply bolt on the

one-on-one coaching component and charge $200 a month, which is what we are, which is the number that we're seeing go all day long for existing customers to add in one-on-one coaching with food and helping them stay accountable with daily check-ins and biweekly, which is twice a month, in-person check-ins where you can also sell supplements, then that is akin to doubling your price, right, in that example that I gave earlier. So you go from having a customer at $200 a month to go into $400 a month, right? And so that means that from doing that same thing, you can potentially six X the profits in your business, right? And so this is why I get so excited about the hybrid thing. So even if you're like, I don't want to change my gym, I love my gym, that's

awesome, right? You know, fantastic. But if you want to make more profit, then ultimately you're going to have to figure out how to provide more value, right? And the biggest lever to increasing the profit of the business is the price. And so what can we do that scales price-wise, right, that doesn't incur lots of costs from a service. Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything. And so the only ask that I can ever have of you guys is that you help me spread the words so we can out more entrepreneurs, make more money, feed their families, make better products, and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I

ask you do is you can just leave a review, but take you 10 seconds or one type of the thumb, it would mean the absolute world to me. And more importantly, it may change the world with someone else. And that's where Bolton comes in, right? And so you could not even, not even change anything about your acquisition, not change anything about how you sell or how you market or any of that stuff, but only use it as an upsell or an ascension piece within your business and be able to upsell X percentage of customers. So let's say you're able to upsell 35% of your head, or let's say 33 for a minute's sake. Okay. So a third of your customers are able to take that upsell, which is a $70 increase in average ticket per customer, right? And so we know right now, and this is

just because we've got some interesting data that we just pulled from the coaching side, the average gym right now makes about $35 per month in profit per customer, right? And that doesn't include supplement sales or anything like that, but simply in just from their service site, right? And so if you were to add $70 per, right, per customer, then and your cost of fulfillment is $50 per customer that is using it, which means we have to divide it by three since it was 33%, which would be let's say $16, right? So you take your 70 and you take out your 16, all right? Then you're at $54 extra per client that you would now make across the board by implementing

Bolt-on on top of your existing business. Okay. And so that would mean that your profit went from $35 per customers to $54 per customer. All right? So with two and a half X, the amount of money that you make every month by simply implementing one thing that adds value to your existing customer base that doesn't fund a change your model at all. And so if you want to, two and a half X, the profit of the gym that you are working with that you have right now, simply bolting on this additional revenue stream without

changing anything else in the business, well, two and a half X how much you take home. Is that a worthwhile endeavor? Especially considering it only takes about one month to implement the entire thing. And then you're done with it. And then from that point going forward, it just becomes a consistent upsell that you have for people who are coming in the door. All right. So look at your math and pull the numbers for yourself. These are the averages that we had. So if you're like, okay, and the way that you pool those numbers in terms of what your average profit per customers per month is you look at how much revenue brought in, how many customers you have, right? And then how much you took home? So let's say you took home $6,000 last month, right? And you have 155

customers. So if you took home $6,000 from 155 customers, right, divided by $6,000 by 155, means you'd be making $39 per customer in profit per month, right? And so when you see, those numbers and you know that you can get one-third of your clients to upsell and take something at $200 a month extra in service that costs you $50 or less to fulfill, right? Not including the extra revenue you can sell with nutrition-based supplements and things like that, but purely from the service side because you may have limiting beliefs around selling nutritional products, which is fine, whatever. But just doing this one thing, which is going to enhance the value that the customers get, decrease your churn as well, which is an ancillary benefit, an additional benefit, because when you have a 101-coach or 101 point of contact, then your turn. decreases because you have a consistent relationship right and so they don't get lost in the masses of group training which is typically what happens and we have to we have to recreate a one-on-one experience by having scalable delivery with the accountability and

retention pieces that we have to build in normally to a training business but when you add in this one component this one additional upsell the amount of money that you can make in your business literally two and a half x is and so rather than opening two and a half more gyms right expose yourself to two and a half times the liability you can do this one thing make two and a half times of money. So that is my that is my big case here. So the strongest profit lever in your business is price and the way to get the price is to add more value. And so right now, ascension, this is another great stat that he had, is that upsells cost one quarter the amount in total cost as acquisition. And so that means the revenue is four times as valuable from a business standpoint. And so this is

essentially what this is it gives you an upsell that you don't have to have more square footage to fulfill and it drives down your turn so it increases lifetime value of your service side of your training side so you literally increase the lifetime value of your service side by simply implementing this on top of this so it has two benefits because I think two of the growth levers by doing one thing which is adding this additional service on top of it which is the one-on-one accountability that you can do and fulfill remotely okay so as a as a tangential benefit it also allows you to pay some of your trainers if you have like one or two hort like strong stallions awesome trainers it allows you to pay them more, right?

Because now you can give them that little piece of these people who took the upsell. And so now you can have that guy who you're like, man, I wish I could pay him $4,000 a month, but I can only pay him $2,500. This allows you to do that. So let's take the example of the $155 client gym that I just made up, right? So if you're 155 clients and you upsold one-third, right, times $233, then you have 51 clients who now are on $200 a month, right? it would actually be $212 if you do the math so it's $10,843 of additional revenue right but then let's do the how much the cost is so 51 clients times the the $50 right so you have 25 $2550 and cost and then you take out your $10,800 right and so you make an extra $8,200 a month which is an extra hundred grand a year that's it so you add an extra hundred grand a year to the business in profit right by adding this a single upsell

to your core model. That's it. You don't need more square footage. You don't need more training times. You don't need more trainers. All of this can be done by simpleting one thing. And that's the deal. That's how it works.

So, anyhow, this is just something that I get excited about because I geek out on pricing and data. Like when someone really just backs everything with data, especially when it supports some of the anecdotal things that we have seen just from trial and error between all the facilities that we work with, right? I get excited about it. I want to share it with you. So if you, if you, if you haven't gotten on board that, then hopefully the numbers speak louder than any story ever can, right? But I know humans and that's not actually how it works, which is why we only give testimonials because people are emotional and they don't make rational decisions about their business. But if you do choose to make rational decisions, which is usually how you make more money, then you should definitely implement this in your business.

Obviously, if you need help, you know, comment, tag somebody, whatever. I'm sure there's a million ways you can apply and get on the phone with them by your guys. But that was not a pitch. It was literally just to talk to you about how pricing is so powerful and how you have to add value in order to remain competitive in an increasingly saturated market, which is going to drive down the price of training, right, group training. It's always going to drive down that way. So in order to escape that, we add more value and we had differentiated services on top of it so that we can recover something that might be lost on the price originally. All right. So hope that makes sense.

Hope you enjoyed that. And tag someone like someone or whatever, whatever you do, you know, share it, tag it, all that good stuff. All right. Have an amazing day, guys. and I will talk to you guys on the flip side.