The Game with Alex Hormozi - Is Churn Dead?? | Ep 167

Episode Date: November 27, 2019

"Churn is important so that you know that there is a problem, but it is very difficult to implement solutions to try and fix churn." Today, Alex (@AlexHormozi) discusses how to improve customer lifetime value by focusing on leading indicators of churn, such as customer activation points. He also talks about the importance of properly setting customer expectations and bringing in highly qualified customers.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:(1:49) - Rich people think about what poor people don't.(3:14) - Focus on leading indicators of churn, as it is a late sign of issues.(6:19) - Customer expectations and transparency.(8:35) - Qualifications can change results and require less effort.(11:56) - Onboarding is a leading retention indicator.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Good morning, everyone. Happy Maniacal Monday, Money Monday, Madness Monday. I wanted to make a video today about something that I've been thinking about lots and that I've been digging into, which is churn. Now, I know before you're like, oh my gosh, this isn't about client acquisition, which means it's less interesting. FYI, if you look at charts of businesses, and you have in terms of business size like revenue, you have VSM, which is very small business owner, which is like solo printer.

You have SMBs, which are small businesses, and are typically brick and mortar business owners who are an owner with three to five employees. Then you have mid-market, which is where you're talking about, you know, 50, 30, 50 employees. And then you've got, and that's kind of a wide range. And that can go up to several hundred. And then you've got enterprise, right?

Big corporations. And so what's interesting is that if you look at where everyone is focused at each of those levels, the people who are the most focused on acquisition and marketing and sales and all that stuff are bottom, bottom part of that ladder. And the top part of that ladder are the people who are most interested in activation,

lifetime value, client engagement, things like that, happiness scores. And that should be some sort of an indicator to you of the people who make the most money are thinking about the things that the people who are not making the most money are not thinking about. So I'm going to make this because this is about Churn and about how some of my views around Shurn

have changed in digging more into this whole software world that we're getting into. And so hopefully I think you'll enjoy it because it's gonna make you money. All right. So is churn dead, right? So we know if you've, if you've listened to any of my stuff, that lifetime value is like all I obsess about. It's all I care about. And I try and find as many ways that we can multiply increase lifetime value for customer, right, which is both how much they're spending and for how long they're spending it. But one of the issues that comes up is around churn is one tracking it. Most people suck at tracking it. But let's assume that you actually do track it well. The problem is that it's a lagging indicator, which means that. that by the time you see that your churn sucks, it means that you've got issues that happened months prior. And so when you want to make a change to correct churn, it takes three, you know, it takes three months plus to actually see it happen. And we've seen it in our, in our businesses,

when the gyms may start using the five force for retention, typically the first month, they're churn doubles because what happens is you shake the tree right you reach out to these people and they're like oh yeah I meant to cancel that and so your turn doubles month one you're like what the heck and then month two it takes it from that top line and then it cuts it in half right so it's like let's say somebody's at um at 8% turn right now month over month they go from 8 to 12 typically so it's actually goes about 50% excuse me so 8 to 12 and then month 2 it goes from 6 to 3 right and then it stays at sub 3 after they do that but It takes 12 weeks and it takes a lot of intestinal fortitude, right?

Some gonads. And gonads, by the way, are asexual. So that's females have gonads too. I found that one out. Anyways. That's not sexist. Anyway. And so what we are now focused on within our business slash businesses is not the churn,

but what is the leading indicator of churn, right? What are the things that happen before someone's going to churn so that we can correct the leading indicator and we can see that happen faster? We can also make that the goal of the onboarding experience the first one or two weeks of someone coming in rather than waiting to see if someone turns and then realizing that we have a massive issue, right? And so there's a couple things that can massively affect turn on the front end. And so what we do is break down what three of those things are, right? So the first one is expectations, right? So when a customer is coming in the door, the expectations of both the marketing and the salesperson of the result they're going to have and then also the experience they're going to be.

to have to get there. And so in an ideal world, you want to sell cold, meaning selling hot is over promising, promising the world, doing anything to close the deal. The reverse of that is kind of unselling, selling against people who sell like that to try and lower expectations of the prospect. You're not doing that because you don't want to over deliver. You totally want to over deliver. But the thing is, if you set the expectations to the moon, even if you do overdeliver, you may still be below the super hot sale that a salesman made. And so what happens is, and we had this early on in gym launch, we had people make 20 grand the first month using our stuff, but they were like, I didn't make 50. I thought I was going to make 50. And we're like, in what world? How can we do this?

But it was really our fault because we had set, or our sales guys had set, or our marketing, because we were marketing, all these testimonies of people making all this money. The marketing had set an unstated precedent that this is how much they were going to make, right? And so to the same degree, if you're doing weight loss, right? Like, you're going to show some crazy transformations, but you also want to show really kind of mediocre transformations. You want to talk about average maybe even the bottom 30% results. And so we've started to talk about this in our sales calls. We're like, these are the actual number.

Like, we're just, we're trying to be as transparent as possible. It's like, these are the numbers because we know that if we're transparent, then what happens is the expectations are properly set. And so then we can actually over-deliver and then we can actually delight a customer rather than just meeting expectations, even though what we did was actually amazing, right? And so the first thing is expectations. The next thing is a huge breakthrough that I had, which is about qualifications. And so the, like, I think, I don't know if I share this with you guys, but at Jim Launch, we've, we've, we've massively increased the qualifications of who we work with, right? And that's because I did a 90-day experiment. We took on a bunch of people who were, I would say, lower on the business acumen scale. Like, they were solo printers, people starting out, et cetera. And our term went through the roof, the amount of payroll hours that I was, I had my guys working, we just went super high. And so just like, all of it didn't work out, right? And so we went totally other direction. We're like, okay, let's be super, super, super high.

qualifications and what we bring in. And what happened was in the first four weeks between before and after, we went from 22 escalation calls to zero, okay, after we implemented the change. The average revenue that was able to bring in for those guys in their first four weeks went from six to 30. We five X the results of the product by changing the qualifications of the person coming in. All right. So if you think about that, if you can change the result that you were producing simply by

changing the people that you were bringing in, that has a massive ramifications. And these people, mind you, required less effort because they were just more able. 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 to do is you can just leave a review. It'll take you 10 seconds or one type of the business.

the mean the absolute world to me. And more importantly, it may change the world with someone else. And so if you're looking at the three things that I was talking about, the first one is expectations, right? So psychologically we can over deliver and what the marketing needs to look like and the sales conversation and the experience

immediately afterwards, which is the onboarding experience, right? I'll get to that as the third piece. Who you're bringing in the door and who you're allowing to say yes. So that's why you're not selling too hot because you're like, you know what, it becomes more of an interview process of are you really a good fit for us?

because we only work with these types of people, because we know with these types of people, we can help them crush it, right? And so if you can get super selective on that, then you can have these huge outcomes. And what happens is your reputation also only gets stronger and reinforced because the only people you serve are good people

and they bring good people, rather than having kind of shit people, and then they kind of don't bring shit people, but then they go and bash your reputation, right? Because they're not able, right? They're just not very able people. And so if you're thinking about that. Now the third one, and this is the big one

that I was referencing earlier, is you have to figure out what your activation point is, right? So an example with this is Netflix. So when they have shows, they can measure how addictive a show is by where the retention point is. So you can call it activation, called retention point, whatever you want to call it, right?

But there's a key point in most businesses where after something happens, the lifetime value massively expands. So for ClickFunnels, for example, as soon as they get someone to have their own domain that says like, you know, Alex.com, and it has a landing page, that person stays like five times longer, right?

And so their whole objective, rather than looking at churn, is how can we get as many people to this retention point as seemingly possible because it's a leading indicator rather than a lagging indicator so they can see improvements almost immediately based on process and change, right? In Netflix, they know that a show is really successful if the retention point or the likelihood that someone watches the entire show all the way through, the sooner they can get that episode. I think Breaking Bad, like episode three or episode,

If you make it to episode three or four, the likelihood you watch all five seasons is like 70%. All right. And so there's a point that as soon as they can get that, as soon as they can get a customer to that point, you push them over, then it allows you to much more quickly iterate on how you're retaining customers in increasing lifetime value. And so I know Orange Theory, because they announced this at one of the summits that they did, that they figured out that for them, for their business, now they have different businesses than a more weight loss centered business.

Big, big, big caveat here. They're a workout experience-based business, very different than a weight loss business, just like throwing it out. But they figured out that if they could get someone to work out five times in the first month, that the likelihood that the person is going to stay with me significantly higher, right?

And so that was their big, that's where they funnel a lot of their attention towards is getting people to work out that fifth time, right? And so for you, right, in your business, if you can look at the people who are the most successful, the people, like, the easiest thing to do is if you just ran, if you're running a friend in promotion right now, you're running a challenge, you're running a trial, you're running a whatever, right? Look at the people who actually succeeded, right? People who converted. And then you can

also look at the people who stayed for six months. And you can look at both those as cohorts, as groups of people, and look at the actions that happened before that. So if you're looking at all the people who converted into the, at the end of your challenge, for example, right, whether it's a detox or whatever, if you know that all of those people, made it in for the first two weeks and they came in six times or whatever, then the likely that, and then you can see all the people who canceled didn't do that or didn't continue had that happen, then you know that that is your activation point. Now, the thing is, is that this is a huge aha moment for virtually every business. So you're not going to get it on the first try. And there's a reason that

companies, as soon as they figure out their activation point, they explode, right? Because then it gives you something that you can quickly iterate off of that you know you can drive everyone towards, which is going to multiply lifetime value, rather than constantly playing in the rearview mirror with churn. All right. And so churn is important so that you know that there's a problem, but it is very difficult to implement solutions to try and fix churn. Now, like at Jim Walsh, we have the five horses per tension, and we have figured out how to do that. Right. And so we've reversed engineer that into a process. That being said, there are probably things that are much sooner in the experience, like the sale, how they are sold. And then the experience they have when they're onboarded, right? Like, do they know how to check?

Like, did someone say, like, all of that, all that stuff that happens super early on is typically when customers are actually choosing or making. the decision of whether or not they're going to stick with the business in the long term, right? And so the two times that customers are really making decisions early on is between the sale and when they onboard or when they start, right, and then the actual onboarding experience, the first real beginning of them receiving value. In those two time periods is when the majority of customers are actually making their decision, believe it or not, whether they're going to come back and stick with your business. And so despite the fact that they paid you, they're actually not, they're making a decision of whether

they want to continue to pay you for an extended period of time. So the sale really begins after the sale because what we're shooting for as a business is lifetime value, right? We make sales to get customers. We don't get customers to make sales. It's an important switch in terms of how you're thinking through it. So is churn dead? Absolutely not.

I just needed a good headline. But what you were tracking, and this is an iterative process, meaning you try it multiple times to try and reverse engineer it, is if you can figure out what the activation point is in your business where if this one thing happens, then the likely they stay significantly higher, then that is where all of your attention, all of your resources, everything you talk about in your weekly team huddles, is how many people did we get to the retention point, right? Rather than rearview mirror, hey, we had X churn, what are we going to do about it? Because churn is really an outcome.

It's an output, but the process change has to affect the cause. And the cause is we have to get more people to this activation. experience so that we can actually keep them longer at multiple that time value. So I hope that was valid before you. Maybe you have an operations manager or someone like that. Tag on this, if you're listening to the podcast and leave a nice review if you found that valuable, tell you friends, Alex's podcast.com. Anyways, have an amazing day, guys.

Happy Money Monday. And keep being awesome. Lots of love. Thanks for too many. All right.