The Game with Alex Hormozi - Scarcity, Guarantees & the Cohort Method (with Vince Del Monte) Pt.1 - March ‘22 | Ep 451

Episode Date: October 22, 2022

(Disclaimer: This interview was recorded over Zoom. We apologize in advance for the quality of the audio.)There is a space choosing between to extremes, but keep close to the choice that is totally risk reversal. Today, join Alex (@AlexHormozi) as he guests on Vince Del Monte’s YouTube to talk about scarcity urgency on resigns, attracting low-quality leads, using the cohort method, and more. This is part 1 of the interview.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.Check out the episode on Vince Del Monte’s YouTube Channel! Timestamps:(0:47) - Cohort method, high-ticket coaching, and rolling urgency strategies.(10:31) - Scarcity urgency for resigns: maximize renewals and upgrades.(14:14) - Techniques for ascending to the next level, including downselling the upsell.(17:01) - Avoiding low-quality leads while offering guarantees in your business.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Mosey Nation, welcome back. This is a podcast I did with Vince Del Monte. We talked about three major topics in this first part. The first was about how to segment for cohorts to figure out which customers are most valuable to you. So you can also make more money by doing less work, highly recommend. How to tactically employ scarcity in a business where you sell customers every single day and some of the tactics that we have seen that really, really drive conversions and decrease action threshold so that people want to buy the moment you give them the offer.

And how to stack guarantees in a way that reverses all the risks such that they would be stupid to say nient to your offer. Enjoy. 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. I love for you just to kind of touch on the cohort method. I found that to be one of our most effective strategies. I know precision nutrition did it for a while too. I know you just have Ben Pekulski, or I think you guys are doing something together, but that's what we did with our HIPFurtary Max program, opened it, closed it, opened it, and we just have these massive surges every six months in new customers, and we lived off that for a long time.

I'm applying it now to even how we enroll members down to how many we have available for the day based on how many we can enroll per week, maybe just expand on what this cohort method looks like, because I feel it's very effective to probably a lot of people listening right now who are doing high-ticket coaching. So for everyone, after you create the ultimate high-value deliverable, right? So we just expounded on one problem. The next problem is going to be cooking the food. the next problem is going to be meal prepping the food and how do you store it.

The next problem after that's going to be eating it and learning how to eat out with friends and not mess up, right? The next problem after that is worrying that you're going to hurt yourself. Like there's all these problems that we can solve. And if that sounds tiring to you, that's okay. The point is that if we solve more problems, we will provide more value. That's it. Like entrepreneurs are supposed to solve problems. That's what we're doing.

And so we want to take as many of these things and make it so seamless and so lubricated of a process. And as an aside here, what do you think is more valuable, right? if I say you can just go to the grocery store and text me or I made this entire training that has 100 videos in it that you can watch and it's a full training on bargain shopping. Obviously the first one, right? Because the actual thing in and of itself, the time delay and the effort and sacrifice associated with the actual deliverable of the bonus rather than delivering is so high it's not worth the dream outcome.

People don't want to say, well, obviously if I spend 100 hours, of course I'll be better at bargain shopping. Can you give me the shortcut? Right? And so with each iteration of our products, we tend to make them shorter. Everything gets shorter. This book was the fourth version of this book when I, like this is the fourth version, full rewrite that I made.

And every book got shorter. It was less, not more. Right. So a lot of people, like time is still the most valuable thing. So once we have the ultimate, you know, the core offer, the valuable deliverable, the other things that we're doing are used to enhance the desirability of that core offer. So that's going to be reversing risk through guarantees. It's going to, which I talk about four different categories of guarantees that you can give.

The second is going to be adding bonuses that are going to solve, you know, minor perceived problems that will overcome obstacles in the sale. You don't need to present all these things when you're selling someone. You present the bonus when the obstacle occurs and then you ask again, right? The third is scarcity, which is a function of quantity. People say scarcity and urgency is the same thing. Scarcity is a function of quantity. How many units do we have? And then urgency is a function of time.

When do I need to buy? If you have to do XYZ buy this date, there's urgency and there might not be any limit. I could say, hey, I only have five of these and I have no urgency, but there's only five, right? And as soon as they're sold out, there's done, right? That's a limited addition. Now, if you did both of those things, which is I only have five and I'm closing it this Friday, then you have both of those things layered on top. And so within the book, we break down each of those things.

And within urgency and scarcity, a lot of people are like, well, how do I do that without sounding scammy? There's tons of ways to do without signing it's scamming me. Because for everyone who's listening, because I'm assuming most of the people are listening to this, are coaches of some sort, right? Then if I were to say, hey, I'm going to send you a thousand clients tomorrow. Can you handle them? Of course not.

It would be unlikely that you can handle it for most people, especially if you have an accountability-based business or one-on-one component, right? So if you can't even handle an unlimited amount of customers, why are we pretending like we can't? So we should be at least advertising what our limit is. So you could probably hand, like think about what your realistic limit is. Your realistic limit might be like five new clients a week, right? And so if you know your limit is five new clients a week, just actually cap it and say,

we only take five new clients a week. And now when you're on the phone with someone, you can say, hey, I have two clients already this week. We only have three more spots this week, right? And it's completely doing because you can't handle more anyways. And you already decided that for your own operational drag within your business, because that's what your operations can handle. Now later you can revisit that and bump it once you, you know, increase your own

whatever, right? And so that is a way that you can add scarcity legitimately without being unethical. And so the three that I like to use here is number one, you can have a total business cap. And this works really well for high ticket, right? So if you're saying, hey, I'm only going to take 100 total customers. And once my roster's at 100, I'm capping it, right? You have implied scarcity. There's also social proof because if you're full, then people already know that other people value this too.

You can also tell those people if they leave, they can never come back. that also creates a fear of missing out, right? And so all these things drive stick, drive lifetime value, and decrease the purchasing threshold. People will buy more readily because they don't want to miss out. It's much stronger to get people on FOMO

than it is on desire for gain. People always like to hoard scarce resources. And if you're a slot is the scarce resource, which is our goal in positioning it that way, then you'll get more people to buy at higher prices, right? So number one is you can have a total business gap. And over time, every quarter, you can bump it if you want to

and create a waiting list, I guarantee you you saw them out. I mean, you just did it with the hypertrophy thing, right? Like, you had like, this is it. And then we open the doors and we close them, right? So that's number one. Number two is a growth rate cap. So this is a cap on rate.

It's a cap on speed, right? Which is what I was referencing earlier, which is instead of having a cap on the total business, we have a cap on how many we can take per week, right? Or per month or per whatever, right? That's the second way you can add in the scarcity. The third way that you can add the scarcity in, is having cohorts in it of themselves. So you can make the argument that the five a week is a cohort, but most people don't think about it that way. So it's more like we're going to do a class of 40 people and we're going to start them all at the same time.

And it actually tends to make operations easier too because you can take them all through the same experience. It tends to be easier in that nature. And then you'll see your sales ramp up right as the deadline starts approaching. Right. And so those are the three ways that you can add that you can ethically add scarcity into a business that you're not planning on capping. Right? Besides the first one, the second two that I mentioned are things that you don't need to cap, but you can still have scarcity, right? Yeah.

Alex, we just launched a new YouTube show called Road to 275, and it's our journey to 275 members in the seven-figure mastermind. And I'm thinking to myself, I got the best results in fitness when I documented my journey and post photos. So I'm like, why don't I do that in my business? And I was always scared to, like, put out how we're actually doing. And I'm like, why would I be scared of that? That's just extra accountability for me.

That's the exact reason that will make, that will make us even more successful. So, you know, we're using authentic marketing. We can literally bring on 25 a month. That is our capacity. So each week, we are literally saying this is how many spots we have. Or you do have to get on the waiting list for next week. And it's just a simple message. It's just, and it's a truth.

So I love this. That's the thing. It's true. I'm like, if I sent, if I sense, you know, some of your clients, a hundred customers more, they can't take them. Like, then why aren't we just telling people we get that we can't hit? Like, it's just, we're just, we're expressing something that was already there. So the next one is urgency, right? And so in urgency, there's cohort-based

rolling urgency, right? Which is, you can say that if we're, and this is how we like to do it, we do this a lot, right? Which is we always start people on Mondays. And so if you sign up today, you can start the next group. But if you don't, then you're going to have to wait until the next one. It's a different way of saying the same thing because now we're not saying it's based on a limit. We're saying it's based on time. Like you don't want to sign up by Thursday because otherwise you're miss the cutoff for starting on Monday. Right. And so by doing that, now obviously next week week they can sign up, but then they're going to have to wait. And so people, time to lie, they don't want to wait. And so they would rather, it's not going to do it either way.

It may as well start now so you can start getting the benefits, right? I love it. Yeah. So we came, I came up with, you know, I was out for my walk, listening to your podcast. I'm just trying to think about how to streamline the operations. I know we'll talk about that a bit later, but I'm like, so our coaches can have, our coaches have capacity for 40 clients per coach. So I'm like, all right, so right now our capacity is 25 members. I'm month, but if we can continue to tighten up our delivery, we can onboard 40 members a month. That makes not only just onboarding 40 months simpler, but it's not every month I know have to bring on one new coach, one new coach, and I can systematize that now with when we start

promoting process of onboarding and then boom. So it just makes everything easier when you're operating from a clear structure. Totally. 100%. The second of the urgencies is ruling seasonal urgency. This is especially valuable for fitness base, right? So you can run a promotion of some sort, right? It could be New Year's. It could be Valentine's Day. It could be sexy by Springs. That's the first three months of the year, right? It could be, you know, love, you know, special for April, right? It doesn't matter. The point is that you can make up, you know, holiday hangover, lean by Halloween, big booty, bookey. It doesn't really matter what the thing is, right? But as soon as you have a promotion, you can use the arbitrary end date as the end of the promotion. Now that end of

promotion, right, you might change the flavor of whatever the promotion is. It may be identical in nature, but it has a different name because now it's the Valentine's Day promotion. And so you can have urgency to end, to bookend your months, which I highly recommend, which is why every single gigantic fitness chain that's private equity owned does this. They always have end-a-month, you know, sales and sales last week of the month, they always do their most sales. Deadlines drive decisions, right? That's one of my little things, right? So, deadline strived decisions. So if we do this and we can say that the promotion is ending on the phone or in person. We can say that. And it's completely true. Now there's going to be another promotion, but this promotion is ending. And so it's real genuine

urgency that we are that we are introducing in the sales process to drive more decisions. I'm not to hear you touch on scarcity urgency for resigns. When people are coming up to their 16 weeks, you know, first phase, first 12 weeks, first 12 months of their program, that's a question our members are, you know, asked a lot of how to maximize, maybe even shift. That might even be how your business is structured. But, you know, how are we, how are we going to maximize people renewing, upgrading? So first things first, you never want to resign people at the end of their country. That's like 101. You resign people halfway to two-thirds the way through. You never wait to the end because you want them to already be in and then not

imagine it ending. If you're doing resigns at the end, they have already ended it and now you have to resell them. Whereas if they're in the middle or half to two-thirds the way through, they're still in the game. It's still an open loop. And you just extend. the opening of the loop rather than loop closes, now reopen it. So that's 101. I've never done resigns actually near the end of the contract time, right? Number one. Alex, is that just say, hey, is it starting to plant anticipation for second phase, third phase, four phase? It's just continuing on letting you know this is where you're at in the customer journey based on this being a four-year journey. Yeah, this is where you're at.

This is what we've accomplished. This is what we plan to do. Let's be real. You want to do more because everybody wants to do more. It doesn't matter what business you're in, people want more of whatever it is that you tell I've heard. And then you add bonuses, scarcity, urgency, and you can add scarcity to the bonuses. You can add urgency to the bonuses to get them to resign. You can add urgency around the deal they'll get if they sign early, right, rather than waiting. So all of those things we can introduce. And then in terms of a tactical, super tactical, if they like the coach they have, if I'm with coach Vince and Vince is booked up, I'd be like, Vince is a waiting list. If you don't re-signed now, I can't be it by the end of the contract that you're going to get. Oh, wow. That's

freaking brilliant. I just want to tell you, thank you. That is genius. Never even thought of doing renewals way earlier in the process. That's genius. But it makes sense because it's when their emotion. And yeah, that's, that's just beautiful. So, and then we can make them all sorts of offers. We've done this before rather than teaching stuff crazy. It's nuts. I'm the guy saying, oh my gosh, how come I didn't think of that? But it's brilliant. So let's just sit on that because I see some of my members asking questions about that. I think a lot of people, and I know you're really hard on that screwing around with the prices, but how do you do these resigns upsells without these decrediting your rent? Very hardcore about my pricing.

Pricing is not negotiable. The pricing is decided upon ahead of time. But if I'm going to give a discount, it has already been predetermined. There's a difference. Like, we will absolutely give discounts for someone to re-sign or give some sort of incentive to sign, early signing bonus, that kind of thing, right? We'll do the incentive, but it's not that it's negotiable. This is what the early signing incentive is. Do you want to do it or do you want to pay more later and maybe not get the coach you want?

Real quick, guys, if you can think about how you found this podcast, somebody probably tweeted it, told you about it, shared it on Instagram or something like that. The only way this grows is through word of mouth. And so I don't run ads. I don't do sponsorships. I don't sell anything. My only ask is that you continue.

to pay it forward to whoever showed you or however you found out about this podcast that you do the exact same thing. So if it was a review, if it was a post, if you do that, it would mean the world to me and you'll throw some good karma out there for another entrepreneur. Gotcha. So it's just, you're controlling the narrative. So it's like you sign up today, right? We have this exclusive thing that we only give to people who do early bird. Right. You're going to get this urgency based pricing discount. Right. And on top of that, I'm going to credit you an extra two months on the back end of your contract for free for taking the promotion, which is how I give you your 20% off.

I'm not even giving a discount. I said two months are tacked on the end. And if they see all the payments and that's contingent on you doing all your payments on time, if you have any contracting issues or any payment things, the bonus is gone. I love it. That's brilliant. We have different levels. Other coaches here have different levels too.

What are some techniques for ascending people to the next level and creating a culture of ascension? So one thing that we're doing now in the seven-figure mastermind is we have an elite program, a $50,000 program with just Coach Corby and I. And we now have something called the kick in the ass reward. So for people that graduate from seven-figure mastermind to elite 101 in the first 90 days, I'd love to hear your thoughts. You can put me in the hot seat here. We put that towards their original 50K so that they're going to do something they're already planning on doing, but we're now going to collect. an extra 35 30K sort of thing in the first 90 days. I think you have a term for that. Is it upsell

the downsell or downsell the upsell? So it's called downsell the upsell because, and this goes for any kind of contracts you guys are selling. So if you're selling term, human beings in general understand priced decently well, don't understand shit about terms, right? And so this is a really interesting one. Like if I'm buying a business, I'll be like, what's more important to your price or terms, right? They're going to say price. And then I'm and be like, well, cool, I can do a zillion things on terms. So it's like, so here's a funny one. Just to illustrate the example, if I say, hey, Vince, I want to buy your house,

real estate market, you know, what do you want for? What's more important? You might say price. Just play long, right? So let's say that you're like, well, okay, cool. Well, what is the price you want? Maybe you give me 10% above market, right? And I'm like, cool.

I guarantee you I'll pay you that price as long as we can do my terms. Fair enough? Cool. Cool. I'm going to finance it over 30 years and you're going to sell or finance it. Right? And then I'm going to take ownership of your house and then I'm going to rent it out and I never even put money in the deal. So I'm just saying that as an illustration that terms matter.

And so it's called upselling the downsell or selling the upsell, whatever, right, is that I like to have a higher ticket contract that's extended over a longer term of time because if you're current, let's say front end program, I don't know the pricing, but just play it with me. So let's say it's 12K for 12 weeks, right? So it's 12K for 12 weeks, which means people are paying $1,000 a week is what they're currently paying. And so if I say, hey, next thing is a year, right? And you're going to pay half as much as you are now and you're going to get more than you're currently getting. Do you want to do it? They're going to say, sure. But the term is now four times the duration.

So if they pay half the price, they're still paying twice as month. Gotcha. So you've got them signed up for, say, you know, 16-week program or something. They're paying a certain amount. And then you cut in half a bunch instead of renew them for 12 months. for two or three years or something. Yeah. And it's just like if we did, if the first thing was 12 months, then yeah, the next thing would be 12 or 24 months or whatever.

That's freaking beautiful. Wow. We, I'm this touch on guarantees. So I want to make sure we've tried this in the past. I don't, sometimes you can get into some muddy waters here. So maybe just like your breast practices on guarantees, especially when you're, you know, you know, offering a 2x guarantee on selling the coaches you're making money. just kind of ways to do the guarantee to not get yourself in muddy waters

and also attracting really low quality leads. I don't like selling broke people. I don't like, now I was broke when I hired my first business coach. If they didn't have, you know, terms I wouldn't have been able to start. So I do like offering credit

and some form of incentive. But just let's talk about, I see some people putting out guarantees and I'm like, that's going to be a nightmare. So some best practices on that. All right. We'll go for top down.

So from the top, if I were to say you're going to lose 100 pounds, right, you're going to lose 100 pounds. And I guarantee that you do that or I'll give you all your money back. Or say, I'll help you hit your goal or I'll give you your money back, right? It doesn't matter how long it takes to get there. You probably have no problem. And the other side is pay me and we'll see what happens, right? There is a space between these two extremes that you can pick. It's just that most people are here.

So it's like, let's take a couple, let's take a handful of steps or start here. and then just peel back as few pieces as we can to stay as close to this total risk reversal as possible. Right. So if we were just to do that, you'd have a more compelling R if you'd be able to sell for more money. If I were to sell a program that I have no guarantee versus the program that I do have a guarantee, you can sell that for more money because it's guaranteed. The perceived likelihood of achievement goes up. It's more valuable. Truly more valuable. We changed nothing. Yeah. Except the guarantee, how we wrapped and positioned it, right? So one, we can raise the price. Number two, we're going to have way more people to buy it.

So we're going to have more buyers at higher prices. That's a double force multiplier in terms of how much money you make. And you're not having an eagent issue because when you make that offer, everyone follows. Right. So that's the extreme over here. So underneath of that, there's four types of guarantees that you can give. All right. The first type of guarantee is an unconditional guarantee.

It's good old fashioned what I just said, which is no questions asked. You ask for your money back. It's yours. Now, you can also attach a different term to that. So I'm trying to get two in the weeds because I've all chapter on this. But you could say, I'm going to give you a 30-day unconditional on a six-month program. So it's like, hey, buy it. So you say, hey, I'm not asking you to make a decision today.

What I am asking to do is make an informed decision, which you can only do on the inside of the program, just like you wouldn't buy a car without test driving or you wouldn't buy a house without walking it. Right? So I'm not asking to buy this program without actually having done it. So all I want you do is give it a shot, which is start. And then if the end of the 30 days for any reason whatsoever, you don't like the smell of my breath, even though we're virtual. you don't like the small in my breath virtually, I'll give you your money back.

That's how confident I am. And the only reason I can make guarantees like that is because we're a legitimate business and I know that we're going to be able to provide the results far in access of what you've experienced in the past. All right. That's a 30 day. It might be a 12-month program. But once they pass 30 days, it's done.

But you're going to sell way more people like that and at higher prices. Right. So that's one. You could do it for the whole program or you could do it for the shorter term. It's up to you. So that's type of guarantee number one. type of guarantee number two is a conditional guarantee, which is, and with conditional guarantees, I prefer to make them way more like grandiose, right? So if it's, you know, I'll help you lose

whatever the poundage is, right, by X period of time, and then a guarantee has two pieces to it, which is you will get X by Y or else, right? So you're going to have this outcome by this time or I will. So the or I will is the thing that gives guarantee teeth, right? Most people don't have good guarantees, like no teeth on the guarantees. And you see, and this is honestly what, so Vince, when you were saying a lot of people are putting guarantees out there, most of them have guarantees that have no teeth. So I can say, hey, Vince, I guarantee I'll get you $100 million, right, if you pay me. And then you'll be like, or what? Right. I'll be like, or you'll continue to have access to my materials. I mean, it's something. It'll get a lot of clicks on the headline,

but from actual like teeth on the on the on the guarantee, it's not as compelling. Right. Yeah, but if they didn't get results in the first place, why would they want to keep it anyways? Yeah. That's my point. So it doesn't actually reverse the risk. Exactly. Yeah. So the strength of a guarantee is proportional to the amount of risk of reverses. So you're getting continued access, I can use the headline of the guarantee, which has some value, right? But the, the soup and nuts of it has no teeth. The more teeth you give to it, the more valid will be. So conditional guarantees, you can stack the guarantees. You can have an unconditional for this and then a conditional for a longer period of time. All right. And then you can guarantee around the outcome,

which is I want to help you lose X weight, or it could be that you're going to establish XZ habit, or it's that you're going to, you know, whatever the thing that you're selling is, right? And then I'll do that and I'll give you twice your money back if you don't lose this amount of weight. If, right, and this is what they have to do, as long as it's right. as long as you attend all of the things and you send me pictures of your food and you check into the gym every day that you need, you know, whatever the thing is, right? And so there's all these little dials here because on the conditions, the more you have, the lesser reverses risk for them. So you really want to be as selective as possible and really pare down to like what are the absolute

necessities that someone has to do. Now, if you want to be a smart cookie about it, what you can do is look at the customers that you have right now, who are successful and who ascended and who bought your next thing and renewed and resigned, and say, what did these people experience in their first 90 days? What did they have happened, or even their first 30 days that they have happened, that were indicators or leading indicators that they would ascend and stick? And so then you build your conditions around the things that create ideal clients. I know if someone sends me their meals every day for 30 days, the likely that that person ascends is 90%. Then my conditional guarantee is going to be that I will guarantee this or twice your money

back as long as you send me this for the first 30 days. Because I know that if I can get you that happy in the first 30 days, you're going to keep doing it. Yeah, 100%. Yeah. So you need to know your milestone. Yeah. Yeah, I love it. It goes back to the offer now and having, you know, when we talked about our last podcast, one way play, you know, having, all right, step one, you need to post this.

two, you know, your blunt post, step three, 25 messages a day. If you don't do that, the only next thing I need to do is like in the gym, now I just need to see how you're lifting, right? Now I just have to look at your conversations. Now I just have to look at the post, but I know the steps are right. So I love it. These analogies are so like, you know, parallel with how you lift in the gym. Like, okay, you're dating deadlift and your body's not changing. All right, now we have to look at your technique. So, oh, that's fixed. Now the body's going to change. Same thing with the business, which is, is why when you can reverse engineer those steps,

you can make those guarantees because you've simplified your process, your method. So it is my opinion that you should guarantee that scares you. More than the customers, yeah. Yeah. And then figure out what's wrong with your business model and your fulfillment. That makes you scared. That's beautiful. Use the guarantee as the fear driver to get you to fix your business

so that the service is on par so that you can fulfill these guarantees. So unconditional, conditional. You can stack the two together. You can also have multiple conditional guarantees. You can say, I'm going to guarantee that you'll hit 10 pounds by 60 days. And I guarantee you hit 20 pounds by 90 days or, you know, that first period of spring. I'll credit back to you. You can say, yeah, I'll credit.

And just for everybody here, you can give a guarantee and not have to give money back. You can give money as credit or extended time. Like there's other things you can give besides money. Money is just the least creative thing. Hope you guys enjoyed us going deep on cohorts. adding scarcity tactically into an everyday business and adding guarantees so that people buy without feeling risk. So you ultimately make more monies. Part two of this podcast we're going to talk about utilizing investments, reinforcing behaviors and how to scale teams.