The Game with Alex Hormozi - Reopening The Right Way | Ep 206

Episode Date: May 15, 2020

You need to lay down all the right cards before claiming your win. Today, Alex (@AlexHormozi) talks about the different factors that should be considered when you’re reopening your business after COVID-19 and making sure that you’re reaching the right percentage points in order to become profitable again.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:(1:40) - Price services at normal rate(2:32) - Determine when it makes financial sense(4:05) - Aim for 80% gross margin, adjust customer billing(7:15) - Make tough decisions for increased profitability(9:58) - 5 steps to scale business after reset(10:42) - Profit model not suitable for large group trainingFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So even though you get permission to open back up, it doesn't mean that you're necessarily going to have the profit to be able to do so. 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. What's going to everyone. Welcome back. So I want to make this video because I in our community was talking yesterday about the math behind how to know how many sessions you should have as you're reopening. to make sure that you are profitable. So one of the big issues that's going to come up is a lot of different states. They have different recommendations.

Some of them are based on percentage of capacity, reopening through COVID. Some of them are limited to 10 people or it's the greater of the two or the lesser of the two, excuse me. And so what that does is it creates a lot of issues for most gyms because the profit model is not built for large group training to not be able to do

large group training. And so what I mean by that is if you're charging, let's say, $5 a session or $10 a session for what it would work out to in terms of the attendance for your $100 a month clients, if you're only able to have 10 people per session at your facility, that would include you and probably one other person. So now you're down to eight. Now, if you're providing one on eight service, it doesn't make monetary sense for you to be in business. So even though you get permission to open back up, it doesn't mean that you're necessarily going to have the profit to be able to do so. So if you were to come back to your full client schedule, when you come back, you probably won't be profitable. And so this is how you reopen the right way. Okay.

So there's two main components to this and I'll go through each one as in depth as I can. All right. The first is what I was mentioning just now. If you're only able to have 10 people per session, then you need to price your services at the price. that that service would be normally offered. So if people are normally paying $1.29 a month at your facility or $150 a month or whatever for unlimited, and you're only able to have 60 people a day at your gym if you had six sessions a day, for example, those sessions, you can't even have 60 because you're going to be included in that.

So now you're talking 50 people a day that you can service, which means you can only service 50 customers. So if you're having a one-on-eight scenario, then you need to charge. 300 or $400 a month for that service as long as that happens. Now, here's the good news. The people who will want to come back are going to be itching to come back. Not everyone is going to come back, but the people who do want to come back, desperately want to come back. And so, likely, you'll have the supply demand curve in your favor, meaning there's more

people who want you than there is availability of time for you to be able to train clients. And so when you have supply and demand in your favor, then it means you can increase your price, right? And so those things work together for kind of scenario one. Okay, if you are limited and can't do like that many people per session, etc. Okay, you need to adjust your price to reflect the level of service being provided, not just letting people back into their old price because it doesn't make monetary sense. Okay.

Now, what I'm going to do is talk about the second piece, which is how do I know when it makes monetary sense? So one of the things in the Jim Watch Secrets book in Section 2, which is the profit levers, which I would highly encourage you to read before you reopen because it'll allow you to fix everything that you did wrong in your gym. This is one of the biggest opportunities of all time for people who own a gym because right now society is giving you permission to change all these things in your gym at once and then restart the right way with the right price points, the right hours, the right amount of people per session all of those things done right so that you can maximize the profit and capacity of facility. All right so this is like never before will you be able to get this opportunity. So take it.

Please take 35 minutes and read section two of the gym on secrets book. It's free plus shipping. Go read it. All right. Now, here's one of the biggest pieces that I have to provide for you. Okay. You want to make sure that you're making an 80% gross margin minimum on your services. All right.

This has been a rule of thumb that we've used at gym launch forever. If you are running on that, then you will be able to make a profit and have a good business. If you do not, and you're like, well, we're at 75. I'm telling you, every percentage point makes an enormous difference. So let me give you an example. If the average gym is running on 12.5% margins per year, that's the average gem. If you go from 75 to 83% margins, then you added 8% to your bottom line. So if you went from 12 to 20, that would be a very big deal, right?

It would be almost twice as much money. So these percentage points matter. All right. So for us, now, mind you, you can set the number whatever you want. My rule of thumb is minimum 80. If you want to be at 85 or 90, by all means, go for it. It's your business. You can set it up the right way.

But let me walk through a simple math example to explain to you exactly how many sessions you can know by math that you can reopen at any given moment. So if you have, let's say, 150 customers before this and then you reach out to all of them and only 100 want to come back. Cool. So let's say those 100 who have said, yes, I want to come back. You can bill my card now. All right. Are billing it $100 a month. I don't recommend that price point, but I'm saying if that is what they're saying, then that's what we're going to work off for the money math.

all right so that's $10,000 a month of recurring revenue that you have built in now if you're running an 80% gross margin that means that on the cost of delivering the services that doesn't include rent that doesn't include admin it doesn't include marketing just your hard cost of fulfilling a session all right is 20% or less of what you are paying or what you are making okay so what that means is if you're making $10,000 a month for your services then it should should cost you $2,000 a month or less to fulfill those services. So if we know that we only have $2,000 that's earmarked for payroll for fulfillment of those services and you know it costs you $20 per session, then it means you have 100 sessions that you are able to fulfill on per month.

Now, if we're going to be smart about this, then we're going to divide our 100 sessions by 4.3, which is how many weeks there are per month on average, which means we have 23 sessions per week that you're going to be able to fulfill, all right? Given the number of people and the amount of revenue that's being brought in, that it's already happening. I don't go off of promises. I'm begging you. Go off of reality.

Hey, if you're a return listener and you have not rated or reviewed the show, I want you to know that you should feel absolutely terrible about yourself and everything else in the world. I'm kidding. But it would mean the absolute word to me if you guys would go ahead and do that. You don't even have to pause the show. You can keep listening and you can just do it with your thumb right now. It'll take you less than 60 seconds.

And like I said, the only way that podcast, Podcast grows through word of mouth and this is you joining hands with me and helping as many entrepreneurs as we possibly can because no one is coming to save us. It's just us. All right. So please go do that now and let's get back to the show. All right. You're going to have like some people's cars won't go through because things have changed over the last two months. Some people say they're going to come back and then don't. Some people are like actually got to wait for my kids. Blah blah blah blah. All right. Go only off of reality. Go off of what goes through. So you get everyone in. You start their billing and then you see what happens and then you dictate the schedule. Right. If you can do that. If you can't, then you're going to have to downgrade your estimation by how much you were making before with all the cancellations included and then drop another 10% just in case. And then use that as the number to base this off of. So, $10,000, $2,000 for payroll. That means if we're getting $20 a session, that's 100 sessions. We divide that, that's per month, by the number of weeks in a month, which is 4.3.

So we have 23 sessions per week. Okay? And so you can allocate those. Let's say that we've got five days a week, Monday. through Friday that might be normal hours. All right. So on those days, let's say we did four sessions today, two in the morning, two in the afternoon. So now we got 20 and we got three left over. And so we can go three on Saturday, right, in the morning, if that's what we wanted to do, right? And so just like that, you can get your payroll and you can get your business to a point where you have an 80% gross margin or higher, right? And so like I said, that is the minimum.

But that is the way that you can know in your gut that you're opening up in a position to be, profitable. Now, if you've done the math and you're like, you know what, I can only have $10,000 a month recurring and my rent is six, well then you're probably not going to start out profitable anyways. And so at that point, you're going to have to make harder decisions of like, do I want to do want to do a big pre-sale and then get another, you know, 50 or 100 people pre-sold on a trial to be able to monetize this? And that's where cash is really important, right? But big picture, most of you don't have that situation. And if you did have that kind of rent, then hopefully your revenue is higher than that and hopefully your price is higher than that, et cetera.

But that's how you can figure this out. And most people do this wrong. Most people are like, I'm going to try and open up as many available times, right? Or the worst scenario you can have is, and this is what I feel like it's going to happen for a ton of people, is I'm going to be limited to 10 people per session. I've got 100 clients. I'm going to increase my overhead so that I can have 10 sessions a day so I can see all my clients. And there goes your margin forever. And then how do you transition back? having to cut sessions right it's not a good way to do it start as little as you can start with two sessions a start with 90% margins right that's fine it's okay start with 90% margin to work at two

sessions a day and work your way back start at three sessions a day whatever right and so from there this is one of those beautiful opportunities that if you ever had that session that never really had good attendance right cut it right cut it get your margin back right and uh like i just want everyone like think covid like Sure, there are things that you probably wish didn't happen. Okay, but take what you can. Right now, you can click reset on your business. These are the five things that you need to do right now.

I'm going to give you the cliff notes on what you need to do. One, you need to switch from unlimited to two or three times a week is your main offer. Because right away, that'll double or triple your capacity. Two, you need to switch your billing to a weekly cadence. Now, it doesn't have to actually be weekly, but it has to be on a weekly, biweekly, or every four week cadence. Why? Because if you do it on every 28 days, you're going to get 13 billings a year instead of 12, which means you get an extra almost 8% in top line revenue for the same amount of service.

What that means is if you have a 12% margin, you get an 8%, now you're at 20. Almost doubles how much you make just from that one change. Each of these levers is like that. So unlimited to two to three times a week, you're going to switch to a billing cadence of weekly, bi-weekly, or 28-day cycles. You're going to change your pricing to match your service, which means when you make these adjustments, typically, when you limit people sessions, fewer people show up, which then means that number of people per session goes down,

which means your value goes up. And so that means that you can build more, believe it or not, because it changes the value proposition to the end user. So just remember that. You're not cutting sessions. You're adding value by making it more personalized because the sessions are going to be smaller and more controlled. And so when you do that,

my minimum recommendation, is 167 all right that's my minimum bare minimum bare bare bare bare bare minimum which works out to $39 a week all right bare minimum most people will be at 49 a week or 59 a week or 69 a week okay and that's what you can do for those and that's what the overall pricing would be so if you did it at $49 a week it be $49.99 don't forget your 99 cents all right which means you're gonna be $1.99.99 every 28 days right beyond that if you typically have exercise that you use that you've wanted to get rid of because they take too much space up and they eat too much square footage

This is the time to get rid of those things and take them out of the program In terms of your sessions instead of being 60 minutes cut them to 45 all right. It'll also increase your capacity and Decrease your payroll so all of these things are things that you can do right now doing it the right way starting with the right price with the right services the right amount of sessions, the right margin, so that you can actually come out of this profitable or even more profitable than you did before. Every person who goes in and tries to increase the amount of sessions they're doing, keep the pricing the same, and then have more individualized service that they're going to do is going to go out, right? The math doesn't support it.

And so just like if I can give you one thing, just trust the math, right? You will be able to make a profit, be able to provide more value to your customers and actually get through this so you can grow your gym, which hopefully is your goal. So that's part one of how to reopen the right way, is structure everything properly. I'll probably make another video on how to market and sell before that. But right now, make sure to get this stuff right. If you get the book, there's a letter inside the book on how to communicate the changes. You can literally copy it, go for it.

It's my gift to you. But yeah, if you don't know where the book is, just go to Alex'sbook.com. There's a free book there. I think it's on Amazon too. If you do, by the way, leave review. Lots of love. anyways happy wednesday wanted to make sure i got that out for you and uh keep being awesome