The Game with Alex Hormozi - How To Raise Your LTV | Ep 804

Episode Date: January 10, 2025

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 and will learn on his path from $100M to $1B in net worth.Wanna scale your business? Click here.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Hi, thank you so much for all your content you make. My name is Lorian and I sell personal finance courses and coaching to win. We do 30 million. For women? Pardon? Four women? Four women. Ah.

With a plus side of the can. Like screw the guys, they don't need to save money. You know, they can learn from someone else. I'm messing with. So we do 30 million in revenue. Bad ass. Thank you. I would like to be at I don't know revenue, which comes to my question.

All right. And what is stopping me is, is our CAC to LTV ratio. So both, CAC is too high, got the team working on volume right now, LTV is too low. Okay. And AOV is too low on our front end.

Okay. So I think it's actually a cash flow. Maybe. Straight potentially, but I'm a little confused on where like exactly to go to work. Okay. How do you acquire our customers right now? Primarily meta.

So it's all paid ads? Yeah. Okay. So all paid ads and you're running to what? A webinar, 2K webinar. Okay, are you have a low ticket offer before the webinar? Are you charging like something as like a self-liquidating offer on the front end? Free webinar, no.

Never done a self-liquidating offer. Okay, so free webinar on the front end. You have a $2,000 offer. Okay, then what? $2,000 or 12-month payment plan for $200 a month. Okay. Which is why our AOV is like $9,000. Got it.

And then acquisition costs like $1,500 on the client. And then we have a back end. Okay. That's 10K has a 7% upgrade rate. Yeah, it's low. Outsourced sales team right now. That's true. And so LTV is like 2400.

Yeah, that's a problem. Yes. That's why I'm here. Yeah, no, your century is too low. You will probably have to bring the sales team in house if you want to really fix it. It's very hard to influence the team. You'll want the Ascension to be integrated. into the onboarding.

And so you sell the $2,000 thing, you have your onboarding call. The onboarding call, the finish of the onboarding call is they set their goal setting call with what would become a setter. And then that setter sets for a closer. So they actually get three calls. So they have webinar, buy. They have an actual onboarding call, because you want them, like, do you want to make sure you deliver.

One on one or that's a group? One minute. You can do, well, you can start with, you can start with group. You can start with group and then you will make more money if you go to one-on-one. It is more ops, but we actually did this. And I have a video that breaks down everything that you need to know.

Yeah, I've seen it. Okay, yeah, yeah. And so one-on-one is better, but if you're gonna start, start with the group. And their way of getting off the call, like saying like, okay, you're dismissed, is that you show me that you have confirmed your booking with your next call.

So that way you have 100% through line to the next. Now they're customers, they're gonna show up. The goal-setting call basically sifts. for who he like what's your goal cool what's that basically just do another sales call again and then you push people into the ones who can afford it that makes sense uh into a closed call with uh basically an invitation to join something that has more help or work associated yes okay great you'll probably need to get third party financing in place yeah on front end oh for the for the sales calls yeah and and front end like you should definitely have some bnPL option so buy now pay later

You should probably have a few. Okay. We have them on the back end. We don't have them on the front. Yeah. Also with the webinar, I would recommend split testing the first five minutes. So retest two or three different intros and look at LTV. That will make you money.

But the biggest issue is that you're upselling 7%. Like you need to be at, you want to be at least 25 and you should shoot for 50. Okay. Okay. So just one more question. And as I'm, that's like a longer term solution, right? It's going to take time to bring the sales team in house and really optimize that process. Why does it have to be a long term?

Just a time it'll take to find a sales leader and recruit and like shift leads from the. You need to hire one person, really good sales director, and then you hire six recruiting firms that do sales and say, I need 10 guys from each of you. And you can get a 60 person team for like two weeks. Okay. Okay. Okay. We just added 40 guys in two weeks to want to work with these. We just paid a bunch of recruits. Like, if we're doing that kind of volume,

we're just going to go to somebody who has a big network of people. That's their full-time business recruiting sales guys. So it's like, great. These are requirements. Go get them. Yeah. And I'm willing to pay for the speed. So if it's, and you can also negotiate if you're doing multiple,

like the same of multiple. So it's like, hey, normally it's 10 grand per head, but I'm going to buy 20 from you. So I'll do it for five. Okay. Okay. So you pay $100. all of a sudden you have a department okay cool so an action on that immediately and

then while we're doing the recruiting and getting that person up to speed just keep spending basically as much as we can afford to spend on the front end to keep like lead flow coming into the back realistically if you spend less you will typically Roas will increase yeah typically YouTube's not that way though kind of random the more you spend the more profitable it's wild yeah it's the shit anyways if you have a cash flow issue right now or like you know it's like it's self-inflicted like you can just spend less and improve the improve the returns but your cac is appropriate 1500 to acquire our customer in that space

not going to get that much lower so you're not going to like you're not going to get below a thousand and so this is a back-end issue like you just have to increase the essential rate and that's it okay thank you you bet awesome hi um i'm jacqueline i know Dentists, yes. Three million, five percent profit margins. You have five different ones, three are part-time. Perfect. Wow. Great memory. Yeah, you're in Dallas. This 30-year-old business, I inherited from your father. Yes. Yep. And my social security number is. Yeah. I can pull it up before. So I know we talked, yes, last night, which you obviously remember. And a couple other people from your team, we talked about this issue, that my number one constraint probably isn't. our cancellation rate, but it is something that I'm like really perplexed about and want to

at least go back with a little bit of something to share with my team about. So our show rate or our cancellation rate is a little over 30%. And this past year we've lost like a million dollars because people made appointments, confirmed them, and they didn't show up. So if you have any insight on what we could do to start improving that, I would be really grateful. Yes. I don't think it's the constraint of your business.

So number one is you're going to want to make sure that the, obviously, that that time is the right time for them. And we ask questions like, is there anything that will possibly get in the way of you showing up for your meeting? And so we call this an integrity tie down. And so after you get a time slot, you want to ask that right afterwards because it like gets, like shakes them out of their like mind.

For whatever reason, it works. So I could come up with some narrative for it, but it works. Number two is, I think I mentioned this yesterday, but I think it might be worth considering pulling up appointments. Like to basically, can we bring them up sooner so that we have increased shop rates? The next one is, let's see here. You wanna make sure that you have automated reminders,

which you probably do, but then you wanna have manual reminders on top of that. So if you have, I would have an office iPhone, and you wanna send manual text at three times. So you're going to send the manual text at 24 hours. So basically think night before. Second text is going to be morning up. And then the third text is going to be 60 to 90 minutes prior. Basically when they have to like get your shit together, get in the car. Now, ideally we like to have some sort of selection that they pick that we have like some cost we have incurred. So this works

exceptionally well for brick and mortar, which I'm sharing it with you. In the gym space, obviously, like we would say, hey, Sharon, I've got this shirt. Tell me what size you're at. And I'll pull it aside for you. And so when you come here, I'll give it to you. Or it's like, do you want red or do you want blue? Like, just do some sort of A.B. Ask for them.

And so it could be as simple as like, you're going to pull, I mean, because it's a dentist office, right? And so you're like, okay, what can I give them? Well, I always get free shit when I go to the dentist's office. And so just like have them pick the free stuff that you put in their goody bag. And then I would send them a picture with their name on it. So that they're like, oh, man, they incurred this cost just for me. I have to show up now.

Right? Because you're having the issue because someone books and like six months later as they're cleaning or whatever, right? That's the problem here. Yeah. Well, we call and confirm their appointment a week in advance. And then we call and remind them again three days in advance. and then we call them and text them again a day before, and they'll say, yeah, I'm going to be there,

and then two o'clock comes, and they don't show up. I think you're reminding too far out. Okay. Like, if I schedule an appointment on Saturday, Monday morning is a different universe for me. Yeah. No, I'm just being like super real. And so I think a lot of people are that way.

And so all of the manual reminders are, like, if you want to, like I use the automated ones for the far out. Like, hey, you're seven days away. Hey, you're three days away. Okay. But I would have the ones that you're putting the real effort in, 24, morning, and right before. Okay. And then have the incentive, have the personalization.

And I will bet you dollars to donuts that that on its own would work. Okay. Awesome. Thank you so much. I really appreciate it. No, you bet. Yes, sir. My name is Tyler.

I sell roofs to residential homeowners or commercial building owners. Sweet. We're about 10 months old, did $1.8 million in revenue this year. Door knocking? Yeah, somewhat. A lot of the guys, like, I've been in the business. industry for a while so I had a lot of return customers. Cool. Did about 1.1 from return. And then my poor sales guys brought the rest of the business. Um, short term goal would be

eight million or greater that and then long term would be around 70 and exit. Uh-huh. Um, the problem is we don't know what model to choose or how to do it. So like, was it franchising. Yeah. Are you going to insurance and storm chase or are you going to do private like cash pay like new? We haven't done any storm chasing. So it's all new roofs and repair? So it's so it's the market that we live in is we get storms every year. So, yeah, have you. It's insurance? Okay, it's insurance, got it.

Okay. Yeah, so I guess my question is like, how would you scale or what model would you choose? And then how would you go about building that? Well, you already have 95% of insurance. So I would probably keep doing that. So what stops you from doing that? Well, we're gonna stay with insurance. Well, insurance is changing a little bit.

Deducts growing up. Homeowners don't want to get their roofs done as often. But would you scale to multiple locations, like different cities, or would you do like a franchise model? Do you feel like you've nailed the model? No. I would, so right now,

what I wouldn't wanna do is try and make a decision with incomplete information when it could be knowable. And so I think once you nail the model, then the path will become really clear. And so if you nail the model and then the returns on capital are really like interesting and you can be more patient, then owning them all privately becomes more interesting.

If it costs a time, of capital to open up and let's say it requires a lot of like oversight then sometimes a franchise model can be good but fundamentally i kind of see franchises is like being impatient just being honest because like all it basically it's the most expensive form of capital is you say hey we're gonna partner and you're gonna say you're gonna put all the money in and i'm only i'm gonna become a you know maybe you get 8% of top line so maybe figuratively it's like 25% partner or 30 percent partner location, which is okay. I'm not like nothing wrong with that, but I have seen such a graveyard of, you know, 20 location franchises that make no money. And the amount of work that it

takes to maintain 20 is about the same amount of work as it takes to maintain 20 where you own them all. It just happens faster, but you make way less money. So I am, I have a habit of flipping franchises back into let's own them all, like the teeth widening chain that we bought. When we bought it, We had 14 corporate stores. We had 18 open franchisees. And so then over the last 12 months, we bought out all 18 franchisees. And so now we own all 32,

but then like all of the administrative headache has just basically disappeared because we just run them the way we wanna run them and we make more money. But yeah, I think you need to nail it and then the scaling of half will become clearer. I know that's not the sexiest answer, but that's probably the truth.

No, thank you. Awesome, yes, ma'am. Hi, my name's Adam. I have a music lessons in recording studio in Atlanta, Georgia. And your content, you and Layla, what you've done is profoundly changed my life because you've put me out of my comfort zone in how I think. And so I sell music lessons to neurodivergent kids between 8 and 18. We have a half million dollars of revenue. Awesome.

I think we could be at $2 million of revenue. And what's stopping me is I've realized that the model is completely. broken. I'm underpriced. I'm overcompensating the staff. We're underutilizing capacity in terms of square footage. Time and physical space and time. And so my question is, how would you apply first principles thinking to what I should do now, next, and later to run the business that I've got as we make the transition to one that becomes an asset. Yeah. So basically the core,

so there's two, a chunked down version and chunked up version of the core economic engine that makes a business successful. So LTV to KAC is the most, the smallest version of that engine. You put some money in, you get more money out.

That's the gross profit you run the entire business off of. At a higher level, it's return on invested capital. Right. So it's like, okay, that's what the core machine is, but then there's also equipment,

there's leases, there's buildouts, there's all that stuff that goes into it. That's not typically included in LTVTACC. And then how much does it cost us to build this machine again and again? So that's kind of how I think about it. Like micro level, it's LDAC, return on invest in capital is what it is at the macro level. When you're like opening more and more locations and saying it costs me 500,000 open a location, location makes me $500,000 in the first six months. Okay, cool.

I've got a two to one return on capital within a year, which is awesome, right? So let's tactical for you. So the nice thing about the music business is that it's actually, identical to the gym business, so I know a lot about it. And so the models that I've seen works unbelievably well have been semi-private models, number one, or the 30-minute, multiple times a week, much higher ticket. People stay three, four, or five years with music lessons with their person. I prefer semi-private because I think you get more loyalty to the brand, and it's less about the music teacher

who can then leave and then take all of those students to go private. And so I like semi-private in general. Also, I'm sure you could sell around the idea that they get a little bit more socialized and it's probably good for them and all that jazz. And in terms of pricing, I want my gross margins to be at least 80%, ideally 90.

Now, you can do that when you're one-on-six, harder one-on-one. And so let's say you have six kids, in a class or four. I mean, you can, you can, you know, level into it, but let's say it's one on four, keep it math simple. And you charge $200, sorry, $50 per session times four kids, it's 200, you make $200 per session, right? Well, for you to pay for an hour of a music teacher's time, what does that cost? Right now, that would be $40 to $50. Okay, so that's 80% right there. So 240, so 80% gross margins right there.

Now if you charge 60 bucks a session, you'd be at 240, so then you'd be at like 84, whatever, in terms of gross margins. So you're above that. But that's my rule of thumb for brick and mortar service businesses is I want it to be over 80. Ideally over 90, but I will not do a business if it has lower than 80% gross margins. Some people do. I just don't like to. Because you don't have enough cash to do anything. Right.

And so then the question is, okay, how do we? How do we create the sales process and the positioning so that, now you already are working with a special class of customers. And so I would imagine that you would be able to probably even more easily than a traditional music academy sell at a premium price. Because if I'm a parent who had a neurodivergent kid, I would be willing to pay for a specialist. And so specialist prices are a premium.

So I think that would work. And in terms of the model, you can, I mean, it's just head count divided by teachers, basically. But you have to get the core gross profit right in the business, and then everything else kind of flows from there. I'm kind of in the same position that this guy over here was, and I don't have an operator, and so I'm kind of in that swamp, too. So we have to get more margin. You have to get more cash flow. Cash flow allows everybody to breathe better. So, okay, I guess that makes sense.

raise prices and get that different sort of client funding. Sell one on four and just sell around the fact that it's a better experience for them. Because you don't want them to be married to a teacher. You want them to marry to, like this is how I would sell it. I would say, listen, Mrs. whatever, like if your child becomes really attached to a single teacher, then if that teacher leaves, then all of a sudden this skill that they spend all this time on,

they'll associate with the teacher and then all of a sudden they stopped playing violin after five years. You don't want that? I don't want that. What we want is to create a positive relationship with the skill so they just continue for life, right? Right. And so we facilitate that by having other people in the sessions and so that the teachers sometimes do change so that no one really goes too attached to anybody, but they really grow attached to the craft. So if you are capacity constraint, so some of you guys are in that position, like you're, you can't, you can barely handle the customers that you have right now. You have three solutions.

The easiest solution is you just raise prices. Because if you have supply constrained, then that means that you have more demand than you have supply. Prices go up, right? And most people just don't do that and just suffer. So just raise the prices, make more money. That's the solution number one. The second solution is change client delivery ratio, which we just covered. So instead of going to one, you go into four.

So you get more out of what you already have. This gives you leverage and it gives you cash flow. Improach your gross margins. The third way is to bring other people in who can do what you do. which is then delegating, you know, the responsibility, right, to somebody else. So that's the ultimate leverage, so you don't have to do any of it. That makes sense? So there's kind of like the three steps that I think about when I have somebody who's

supply constrained and they don't have any time. They can't go the business and they can't sell more customers, but they need to sell more customers to grow the business and it's the rock and hard place. And the nice thing is we start with price because it's the fastest and easiest one to do. You don't have to do anything. You have to change anything. You just say a different word and then you make more money. So our primary thing when we opened was it was a hundred,

percent private lessons. Yeah. And so that's where that's basically the only difference in the, the hypothetical gym in gym launch, which I'd read the whole thing on the plane over here, how I didn't know that book didn't exist until it's a good book. It's awesome. Yeah. So what would what would the, you can still have one-on-one. You can still have one-on-one. Just I would predominantly sell semi-private. And if someone's like, well, I want the special snowflake treatment, then you're like, awesome. I'll give this special snowflake price. Right. How would you design the, that, the initial offer for that type of model, the six-week beginner challenge.

But it would be something, whatever the fast outcome that you can deliver to a kid who's neurodivergent who picks up a violin or whatever the instruments that you teach are. It's like they'll be able to play this, like a song in this period of time. Now it might not be good, but like they'll be able to, you'll recognize it kind of, right?

But like I would want some sort of discreet outcome. And that would be like an outcome. You could also do some sort of subjective thing, which is that like they rate X or they, like you could have a survey at the beginning, serve at the end, that would be kind of more of an internal thing. Got it. But yeah, typically you'll sell some sort of package up front.

I'm gonna guess that the price point for what you're looking at is between 600 and 2000 is what the upfront package would be and then you'd upsell or at least let people go into continuity on the back end. And it'd probably be somewhere in the neighborhood of like six weeks to six months, you would know that range better in terms of how long this off one.

Okay. Yeah. And the best thing, we're drowning in context. We're a recording studio. These kids are making songs all the time. Yeah. And they should be feeding the marketing, but it's just so much, then there's that whole problem.

Yeah. You just need time, man. Like, I think what's interesting is that, like, the more stressed you are, the lower, this is not me, this is not a slight, just to be clear, I'm saying in general. The more stressed anyone is, the lower your IQ is. And so I'm saying this to say that, Again, this isn't a use thing. I'm saying that the problems that you struggle with

when you are stressed, when you have a good night sleep in a little bit of time, you solve in like five minutes. And so if you want to increase your capacity, it's like let's solve for capacity. And then a lot of these things that are keeping you up at night, you're like, oh, we'll just run a six-week thing, or run a 12-week thing, we'll sell it for this. I can see how the margins work out.

And like, we already have more demand than we can handle. So it's okay if people say no at our higher prices, because we'll make it up and profit anyways. on the people who do say yes. That makes sense? That wasn't a slight, to be clear. I was saying for anybody. That's fine.

Yeah, no, it's true. So, cool. I appreciate that. Yeah, you're back. Hi, thank you so much for all your content you make. My name is Lorien and I sell personal finance courses and coaching to women. We do 30 million.

For women? For women. Ah. With a plus side of the hands. You're like, screw the guys. They don't need to save money. You know, they can learn from someone else. I'm messing with you.

So we do 30 million in revenue. Bad ass. Thank you. I would like to be at I don't know revenue, which comes to my question. And what is stopping me is our CAQ to LTV ratio. Okay. So both, CAQ is too high, got the team working on volume right now. LTV is too low.

Okay. And AOV is too low on our front end. Okay. So I think it's actually a cash flow. Maybe. potentially but I'm a little I'm a little confused on where like exactly to go to work okay how do you acquire customers right now primarily meta so it's all paid ads yeah okay so all paid ads and you're running to what a webinar 2k

webinar okay are you are you have a low ticket offer before the webinar are you charging like something as like a self-liquidating offer on the front end no never done a self-liquidating offer okay so free webinar on the front end you have a $2,000 offer okay then what $2,000 or 12 month payment plan for two hundred $200 a month, which is why our AOV is like $9,000. Got it. And then acquisition costs like $1,500 on the client. And then we have a back end.

Okay. That's 10K, has a 7% upgrade rate. Yeah, it's low. Outsourced sales team right now. That's true. And so LTV is like 2400. Yeah, that's a problem. Yes.

That's why I'm here. Your essential, yeah, no, your essential range is too low. You will probably have to bring the sales team in house if you want to really fix it. It's very hard to influence the team. You'll want the Ascension to be integrated into the onboarding. And so you sell the $2,000 thing. You have your onboarding call. The onboarding call, the finish of the onboarding call is they set their goal setting call

with what would become a setter. And then that setter sets for a closer. So they actually get three calls. So they have webinar. buy they have an actual onboarding call because you want them like you want to make sure you deliver one-on-one or that's a group one-minute you can do well you can start with you can start with group and then you will make more money if you go to one-on-one it is more ops but like we actually did this and I have a video that breaks down

everything that you need to know okay yeah and so one-on-one is better but if you're going to start start with the group and their way of getting off the call like saying like okay, you're dismissed, is that you show me that you have confirmed your booking with your next call. So that way you have 100% through line to the next. Now they're customers, they're going to show up. The goal setting call basically sifts for who, like, what's your goal? Cool. Basically, just do another sales call again.

And then you push people into the ones who can afford it. That makes sense into a closed call with basically an invitation to join something that has more help or work associated. Yes. Okay, great. You'll probably need to get third party financing in place. Oh. Yeah. On front end.

Oh, for the sales calls. Yeah, and front end. Like, you should definitely have some BNPL options, so buy now, pay later. You should probably have a few. Okay. We have them on the back end. We don't have them on the front end.

Yeah. Also, with the webinar, I would recommend split testing the first five minutes. So retest two or three different intros and look at LTV. That will make you money. But the biggest issue is that you're upselling 7%. Like you need to be at, you want to be at least 25, and you should shoot for 50. Okay. Okay.

So just one more question. That's like a longer term solution, right? It's going to take time to bring the sales team in house. To bring the sales team in house and really optimize that process. Why does it have to be long term? Just a time it'll take to find a sales leader and recruit and like shift leads from the... You need to hire one person, really good sales director. and then you hire six recruiting firms that do sales and say,

I need 10 guys from each of you, and you can get a 60-person team in four, like, two weeks. Okay. We just added 40 guys in two weeks to want to work with these. We just paid a bunch of recruits. Like, if we're doing that kind of volume, we're just going to go to somebody who has a big network of people. That's their full-time business recruiting sales guys.

So it's like, great. These are requirements. Go get them. And I'm willing to pay for the speed. So if it's, and you can also negotiate if you're doing multiple, like the same of multiple. So it's like, hey, normally. it's 10 grand per head, but I'm going to buy 20 from you.

So I'll do it for five. Okay. So you pay 100 grand and all of a sudden you have an apartment. Okay, cool. So action on that immediately, and then while we're doing the recruiting and getting that person up to speed, just keep spending basically as much as we can afford to spend on the front end to keep like lead flow coming into the back end? Realistically, if you spend less, you will typically, Roas will increase.

Yeah. Typically. YouTube's not that way though kind of random the more you spend the more profitable it gets it's wild if you have a cash flow issue right now or like you know it's like it's self-inflicted like you can just spend less and improve the improve the returns but your cack is appropriate $1,500 to acquire a customer in that space not gonna get that much lower is yeah it's like you're not gonna like you're not gonna get below a thousand and so this is a back-end issue like you just have to

increase the ascent rate and that's it okay thank you you that awesome