The Game with Alex Hormozi - Price to Value | Ep 344

Episode Date: November 11, 2021

Set yourself up for success with this ratio! Today, Alex (@AlexHormozi) talks about how the most successful framework involves only three important lines that will dramatically bring in more value and money to your company and the different combinations of these lines.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:(1:53) - Every business: sell price, value to person, cost(3:19) - Examples: different combinations based on levels(6:28) - Golden ratio: provide valuable, low-cost, create customer surplusFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Three most important lines that you need to draw in your business that you probably are not. 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. Welcome to Mosey Nation. In this video, I'm going to be sharing with you the three most important lines that you need to draw in your business that you probably are not. And I want to show you some different combinations of these lines and how dramatically it will impact how much money you make and ultimately the value. you have the company that you ultimately built. So if you don't know my name is, my name's Alex

Ramoseo and Acquisition.com. We do about $85 million a year. This is a Rona sponsored episode. So if I'm less chipper than normal, that is why. We thank our sponsors as always. And so these are the three lines that I think everyone needs to understand. All right. So line number one, right here, I'm going to make sure that you guess, so if you can, guess right now, which each of these lines are going to represent. You have price, you have value, and you have cost of good. goods. All right? So every line has every business has these three lines within everything that they sell. You have how much you sell it for. You have how much value the person gets and you have what it costs you. And what I want to show you is a mental framework and the interplay between these things and how dramatically it can shift your business.

So this is the value line. This is what they are getting. This is the price line. This is how much you charge. This is the cost of goods line, which is how much it costs. you to fulfill on this value. Right? Right. Okay. So here's where it gets kind of cool. If we move our price up, see how little value we have here. This means that we have a low customer surplus. Customer surplus is the excess between what they pay and what they get. The higher the surplus, the greater the distance between these two things here, the more value they will perceive that they have gotten from your services. The bigger this discrepancy is, the more viral your business will be. Imagine there was a day years and years ago where you could have access to everything in

the entire Blockbuster store on demand from the comfort of your home and you could do it for less than it costs to do a new release and to rent a new release. Wouldn't that be amazing? Well, they did create that and that was called Netflix. And so what they did was they it's so low, but their cost of goods was still lower because the cost of the incremental cost of adding a single customer was is basically nothing, right? And so their gross margins here is still very high because for them, they could still lower these things even more. And so what I'm going to tell you at the end of this video is that the trick to how you actually can build a fortune simply understanding the interplay between these three lines.

If I have one takeaway for everybody who's watching this, is that if you can think about your business just using these three lines, then you will be able to build a fortune. If we have here our cost of goods at the bottom and we raise this all the way to here and we have a ton of customer surplus, what kind of business is this? This is going to be a business that probably doesn't need to market very much. This is going to be a business that is probably operationally difficult, probably a service-based business, and probably runs on very thin margins. Many businesses run like this. These are a lot of old school businesses that grow consistently every year by, you know, 10%, 15% per year. And they don't have a ton of money

to reinvest in resources. They're very operationally efficient in order to run a business like this. That's business scenario one. Let's see if you can guess what type of business this would be. Hey guys, real quick, if you're new to the podcast, I have a book on Amazon called $100 million offers that over 8,000 five-star reviews and has almost a perfect sport. get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand hours into writing that book. And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more.

And ultimately make more dollars to that later on in your business career, I can potentially partner with you. So that's my give. Go check it out. Amazon and back to the show. So this is most of your generic mom and pop businesses. Decent margin. Let's say this is the baseline here.

Sorry. There's our baseline. decent margins here decent margins decent value just kind of another run-of-the-mill business nothing underwhelming or overwhelming about this business and this is what most small businesses operate like so let me tell you what type of business I would like to try and create my goal is always to find a way to provide something that's excessively valuable that cost me almost nothing to make unique expensive sticky air for those you know guys who

know that channel, or one of that video, it's one of my favorites. I want something that costs almost nothing, provides tremendous value, and creates a big customer surplus. And here's what's crazy. The bigger you do this discrepancy, the more viral your business will become. For me, as I feel like I've aged in entrepreneurial doggy years, the more I strive for this than anything else. Because if you conquer this piece, you conquer the customer surplus in terms of how much value they are getting for what they are paying, then you will have an infinitely scalable business because you will have a quadratic way of expanding, which is through word of mouth, which is the antithesis of what everyone in the marketing world will tell you.

But the goal should always be to have a business that grows on word of mouth. The problem is most people don't have enough word of mouth because this surplus is not big enough. If you have the surplus big enough and you go from good to great and great to so good that people cannot help but tell their friends about you, remarkable or remark worthy. That is how good it is. Then you will have more customers that you know what to do with and your cost of acquisition will be zero. And your business will grow quadratically, not linearly. That is the difference between making money and building a fortune. And I thought of this visual with the three lines and I just thought it was really telling. And so I thought I would keep this short in the spirit of Rona to show you this. But if you can think

through how you're providing value and really focus, because it's the way, the things that you can control, you can control all three of these variables. But when I'm trying to diagnose a problem that I want to solve as an entrepreneur, I think, how can I provide the most value? Step one. Step two, how can I lower my cost of goods sold to a crazy degree? And then once I know how I can lower my cost of good sold to a crazy degree, I'd rather have something that cost me a penny that I can sell for 10 cents that has the value of $10. And if you have that kind of value that you're able to deliver, you will make a literal F ton of money. And so I think this is a useful framework. You can apply your own business. You can probably plot your competitors' business using this simple

framework. And I thought I would give it to you because it's one of the tools that I use when I'm thinking through how valuable an enterprise could potentially be and how I can move these lines around to create value, create margin, and ultimately take home the most money and help the most people. Just like everything that we do, hopefully the price that you paid was the time. The value that you got was hopefully a framework that you can use to apply to your business. And the cost to get sold for me is the time that it takes me to do this and the many failures and lessons I've learned and suffered the hard cost of failure to make these little frameworks for you. So anyways, Mosey Nation, I love you guys.

The reason I make this stuff is because a lot of people are broken. I don't want you to be one of them. As always, I have nothing to sell you. Keep being awesome. If you enjoy this, hit subscribe. If you didn't, love you, either way. get you guys the next video. Bye.