The Game with Alex Hormozi - One Time Fees | Ep 188

Episode Date: March 17, 2020

"When you have a big initiation fee and the larger discrepancy between the initiation fee and then the subsequent billings, the stickier the billings become." Alex (@AlexHormozi) discusses the benefits of using an initiation fee and how it can make subsequent billings stickier. He also talks about different ways of using discount offers and how to monetize them ethically.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:(1:52) - Benefits of initiation fee: stickier billings, cool discounts(2:55) - Initiation fee allows cool discount offers(5:52) - One-time fee explained: one-on-one help, 80% savingsFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The larger to the discrepancy between the initiation fee and then the subsequent billings, the stickier the billings become. Welcome to the Jim Secrets podcast where you 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 that we have learned along the way. I hope you enjoy and subscribe. Good morning, everyone. We guys are having an awesome start to your day. I'm making a badass one of the next frameworks for the book on acquisition on how to make different offers. Pretty cool. I'm actually really, really excited. I've got eight different ways that you can use free and monetize it Ethically. We've got three, I think four different ways that you can use discount offers and still monetize the acquisition

And so one of the ones the ones I'm working on right now is is about discount offers and so One of the things that goes hand-in-hand with discount offers one of the ways to use them is a one-time fee and so What I wanted to kind of go over is one of the pros and cons of having one-time fees so So that can typically, in most businesses, not just gyms, right? You have one-time fee, which might be activation, it might be initiation, it might be enrollment, it could be service fee. Like you'll see it, that fee appear in a lot of businesses, especially ones that are more established, and that's because they understand the value of it.

So way back when, I know that in LA Fitness at least, I'm not sure if they do it at 24, but I'm pretty sure they follow the same outline, which is they usually give the salesman that fee. So whatever the salesman is able to collect on the initiation or the enrollment fee is actually their own commission. And so because it's so inexpensive to sign someone up, if you can't get the initiation fee, then it's like not worth your, like they don't want to pay commission on a $25 a month, you know, a contract. And so for that, they made the initiation fee. Now here's some of the benefits of the initiation fee. When you have a big initiation fee and the larger to the discrepancy between the initiation fee and then the subsequent

billings, the stickier the billings become, right? And so, for example, a friend of mine owned a chain of tanning salons, and he saw that the stickiest membership that he ever created was $100 down, $10 a month. So they'd have to pay $100, but they were able to get half the monthly rate of his normal thing, which was, I think it was 19-something or 1888, I think was what his monthly dues were. Now, obviously, he's dealing with significant volume you know 4,000 plus people who have memberships at a tanning salon. So that's, you know, how his his model worked. That being said, the nice thing about the initiation fee is one is you can use it to pay a salesperson. So that's really useful because initiation for a lot of times is typically

an incredibly high margin thing, right? You're just adding somebody into a system or whatever your, you know, processes. And so that's number one. Number two is that it also allows you to give really cool discount offers. So you could say, uh, 88% off your first month. And so when people come in, you can have the 88% off the first month and then you have an enrollment fee. Right. And whatever that enrollment fee is may be in addition, like let's say you have a $200 a month membership. If you did 88% off, then, you know, it's 24 bucks for their first month, which is nothing. But 88% off seems really attractive, right? But when the person comes in the door, you can still have a one-time fee in your, you know,

you're compliant. Obviously, you always want to be a compliant advertiser, put the stuff on your thank you page, et cetera, disclosed, et cetera. But still, most people will be attracted to the offer to come in. And so what that allows you to do is still essentially sign people up straight into a recurring membership at almost. So really, at that point, the 88% off, if you look at it from a pure number standpoint, would be you're making 124 instead of 200.

So you're really only giving like 30% off. if you were to factor those two pieces together, rather than 88, but 88 is obviously a lot more attractive than just saying 30% off your first month. 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 has to do

You can just leave a review, it'll 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 for someone else. And so those are some of the benefits of using a discount offer plus a one-time fee. And the thing is, is you can make that one-time fee whatever you want. And one of the ways that I justify that within the context of selling is that you can also put an onboarding fee. But it's essentially saying you're going to.

cost our company more time to get you going than you will in every subsequent month. Right. And so if we charged you a thousand dollars up front and then it was $200 a month, then it's kind of understood that like even like a fitness client's a perfect example right because in the beginning they don't know how to do anything, right? You got to teach them how to eat. You got to teach them how to cook. You got to teach them how to grocery shop. You got to teach them how to log into your you know your your Zen plan or your mind body or whatever your CRM is to get scheduled for workouts. You got to teach them how to actually walk through the workouts and understand kind of how your system works at your facility.

All of those are costs that you incur as a business that is taking away from the servicing of other customers. And so for me, whenever I had something that I had, you know, some sort of higher fee up front, it's always, it's very easy to explain what people. What is that? It's like, well, you like in the beginning, you're not going to know how to do anything. And so it actually can take a lot of one-on-one time with us to help you get up to speed. Once you're up to speed, you cost us significantly less to continue to maintain. And so at that point, you get to, that's reflected in the fact that you're saving 80% on an ongoing basis. So that's how, that way you can position it as like, if I had to keep doing this, you'd have to keep paying this $1,000 a month.

But instead, once we put this initial time into you, then at that point, the savings that we have are passed right on to you. And so it's a different way of explaining it that I think most people, um, a, get, and B are not nearly as, you know, weirded out about. But make my mistake, if you've ever gone to any kind of, especially bigger businesses that you've heard of, I like using car rental companies because they're very big companies that most people have interacted with. Like, those fees are 100% pure margin, and it's so that they can recoup the cost of acquisition and pay commissions to the person who sold you.

All right. So, anywho, that is. just a little a little note on one way to use discounted offers I have four other ones and then I have eight different ways that you can monetize free so very excited to to release that it's gonna be the new ebook infographics on frameworks for acquisition so I'm pretty pumped about it but anyways hope that was valuable for you if it is you know drop a comment or like and if it wasn't then just don't tell me all right anyways have an amazing day kid you guys soon bye