The Game with Alex Hormozi - Scariest Decision I Have Made | Ep 342

Episode Date: November 4, 2021

Small tweaks + big changes = lots of impact! Today, Alex (@AlexHormozi) talks about the 2 moments where he had to make a big decision in which one gain a lot of profit while the other…did not. It’s all about selling with conviction!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:(1:19) - Sent mass letter: price increase for subscription with discount.(5:07) - Offered 2 weeks free trial; ⅔ customers stayed after a month.(7:05) - Higher value, higher price; lower value, no money.(7:47) - 6 ways to increase LTV: price increase, cost decrease, upsells, cross-sells, downsells.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

If you can sell something that you truly believe and you'll make a lot more money. 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 want to tell you about one of the scariest decisions I ever made my entire life, which was when I had my gyms, I was selling a boot camp at the time. This is before I knew a lot about pricing, and I was charging $99 a month. And I got really fed up at one point, and I was like, I don't think I'm helping people.

I want to have semi-private because this is where people are really going to transform their bodies. And I want to sell with conviction, right? So just keynote, side note, pro-tip, life hack, if you can sell something that you truly believe and you'll make a lot more money. And so I had gotten to the point where I didn't really believe in boot camp as a vehicle for personal transformation in terms of body-wise. And so I was so convicted about our summer private program because clients were getting way better results there that I wanted to switch all my clients over that. Now, I couldn't do that at $99 a month. And so I sent a mass letter out to my customers, all right, that said we were going to go from $99 a month to $2.99 per month. So I was going to triple my prices.

Add more value, but I was going to triple my prices. All right. And at the end of this video, I'll tell you what happened when I sent that email out. All right. Now, what I want to do is tell you a secondary story of a similar situation that happened later on in my business career. All right. And it was, we were, we were selling our program at $42,000 per year, all right, at the time. And that was being billed at $800 a week, roughly.

All right. And I wanted to decrease our turn. And so I was trying to figure out a way to decrease our turn so we could extend, you know, increase our lifetime value per customer. And I kept, you know, all my team and all that stuff, they're like, we have to lower our price. We have to lower our price. And I, and I hate, I hate lower my money. prices. I don't like lowering prices. It just generally doesn't mean you make more money. And so after a long time, I said, you know what? Fine. We're going to add more and we're going to go to $600 per week.

All right. That's what we're going to do, all right? Which if you're doing the math, it's like 31K. All right. That's what that's what I decided to do. All right. And so let me tell you what happened in each of these scenarios. all right so as soon as I made this change right here all right so what I did was I bid this big announcement I had said we're gonna roll out this new additional services program and I did this huge presentation this huge pitch and then and I stacked it and stacked it and stacked it and then I was like and you're gonna get all this stuff and you're all gonna get a discount and that's what I said and everyone was like yay I actually did have one person complained to me they said

why are you doing this now you should have been discounting us before which just just goes to show you that no one will ever be happy with it you're doing. I was literally saying that they can pay less and I got somebody upset with me. All right. And so anyways, I decreased the price and though this is what ended up happening. My churn remained completely unchanged and I lost $5 million per year in profit. One decision. Five million dollars a year I lost as a result of this.

And so I can tell you firsthand, most of the first hand, most of the money. times when you lower your prices, you make a lot less money. And so what happened to me is that my overhead stayed the same. It actually went up a little bit. So I added about 100K a month in overhead to my business so that I could add for this new service. And then I decreased my price by 25%. So imagine cutting top line by 25%, which is literally what I did. And by making this little beautiful combination. So I increased my cost by $1 million. And I decreased my top line by $400,000 per month at the time for that business. All right. And it sucked because here's the beautiful thing. I thought, hey, if I decreased this price, if I can cut our churn by half,

right, which is what I thought I was going to be able to do, if I could cut my churn in half, let's say from 10% to 5%, right, I would still 2x LTV, right? So I'd rather decrease by 25%, right? But then 2x LTV. I'll take that trade every time, right? Aha. But that's not what happened. Turned stayed the same. And I just lost 25% of top line, which if we were running a 50% margin business, right, I just lost half my profit, which we weren't. We were actually running a 70% margin business at the time. Right. And so I actually cut my income by a third, which sucked for that business. It was not fun. I highly recommend not doing it. And so that was the first thing that happened. So let me tell you the story that I started with,

this puppy, all right, where I had my clients, and I told them all, hey, this is what we're going to do. I'm going to give you two weeks for free. So I did have to front this labor, two weeks free of this new service. It's much better. You're going to get way more personalized attention. You're going to be lifting weights. You're going to learn form, all this type of stuff.

And I said, after those two weeks, you were going to automatically all be enrolled at $2.99 per month. Let me know if this is going to materially affect your life and you won't be able to buy groceries as a result of this decision. All right. So here's what happened. quick break just to let you know that we've been starting to post on LinkedIn and want to connect with you. All right, so send me a connection request and note letting me know that you listen to the show and I will accept it. There's anyone you think that we should be connected with, tag them in one of my or layless posts and I will give you all the love in the world. All right. So let's get back to the show.

One third of my customers left. They said, Alex, you suck. I can't believe you're raising prices on us. Blah, blah, blah, blah, blah. two-thirds of them stayed at three times the price. What happened? I two-xed the revenue of my business, and I serviced only two-thirds of my customers, which means my cost of fulfillment went down,

and my revenue went up. Excellent combination. And so by doing that one thing, I was able to more than two-xed the profit of my business. And so I tell both of these cautionary tales as I was petrified to make both of these decisions. One of them dramatically increased the profit of my business. The other one dramatically decreased the profit of my business. In most cases, providing more value and charging a higher price in order to provide the higher value will make you more money because you will service fewer

people at higher prices. The reverse of trying to service more people at lower prices, by also providing more things, most times will make you less money, especially in a service-based business. And so I tell this cautionary tale because it makes me sick to think about it. But hopefully, it makes you sick to think about it. And if you're contemplating, what should I do with my prices? Because I would like to increase my LTV, the LTV can be increased in six ways. All right? Number one, you increase your price. Number two, you decrease your cost. And then number three, four, five, six are resales, get people to buy more times, upsells, get them to buy more of the stuff they're currently buying, cross-sells, get them to buy different things,

downsells, get people who we're not going to buy to buy something. All right? So this is, you're buying burgers once a week, now I want you to buy burgers twice a week. This is you go from a small burger to a big burger. This is, would you like fries with your burger? This is, would you like a junior burger instead of your current burger so that you buy more or buy something instead of buying nothing? So these are the six ways that you increase LTV. You'll notice what I was trying to do was get more people to do this and I cut this.

and I lost. And so I tell this story to hopefully get more people to not make the terrible mistake that I did. And I have learned that painstakingly. And most times, I would say 99 times out of 100, when you lower the price, you make less money. Sometimes you make more, but the vast majority of the time you make less. And I'll tell you one final thing to illustrate this concept that I think everyone should understand. All right. So let's say you've got a $100 thing here.

here. And let's say your profit is 40 bucks. If you decrease your price to 80 bucks, right, on this product, you would have to sell two times as many people at this lower price because you have half the profit, right? Say this is cost. Most times if you make this kind of change, you're not going to two X your sales. But you will make half the money. And that sucks. All right. So make sure that when you're making these changes, and here's the flip side, If you were to take this and go to $150, right? Now you're making, let's say, we're now making $90. So we more than 2xed our profit, you probably won't sell half as many customers.

You might just sell three quarters as many customers and make two times the money, which means more than what you're making now. Small tweaks, big changes, lots of impact, think through these decisions. My name's Alex Formosie, own acquisition.com. We have a portfolio company of $85 million in revenue yearly. My goal is that for everybody in this channel, there's a lot of people who are broken. I don't want you to be one of them. If you enjoyed this, you found value in this in your own business.

Hit the subscribe button so we can give you more bids like this. And if you did not, I love you either way. Keep being awesome and I'll catch you guys next video. Bye.