The Game with Alex Hormozi - Secrets to making money without a lot of clients | Ep 297

Episode Date: May 6, 2021

What value are you bringing to the table? Today, Alex (@AlexHormozi) talks about the 6 ways to increase Lifetime Value in your products, dives a bit into each way, and shares his personal favorite one at the end (which he thinks is the most powerful of all!)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:(1:17) - The 1st way is to increase the price & 2nd way is to decrease the cost(3:55) - The 3rd is to increase purchase frequency & 4th is to upsell(5:19) - The 5th is “cross-selling” & the 6th is “down sales”(10:03) - The most powerful way to increase LTV between the 6 waysFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So there's two ways to grow business from a fundamental standpoint. Number one is you get more customers. Number two, you make those customers worth more. That's it. So it would behoove us as business owners who are trying to make more and grow our businesses that we should know all of the different ways to, A, get more customers, and B, make them worth more. 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 than the many failures and lessons we have learned along the way.

I hope you enjoy and subscribe. Good morning, everyone. It is Alex Formosie here from Jim Launch, Prestige, Allen, and the many other companies. that we have in our portfolio. They did for $110 million in sales. And I am going to tell you how we did that. Without further ado, the purpose of this video is to show you the six ways to increase lifetime value.

All right, and I'm going to show you my favorite one at the end of this that I think is the most powerful of the six. All right? And so first thing we have to do is define lifetime value. All right, so there's two ways to grow a business from a fundamental standpoint. Number one is you get more customers. Number two, you make those customers worth more.

That's it. That's it. So it would behoove us as, business owners who are trying to make more and grow our businesses that we should know all of the different ways to a get more customers and B make them worth more all right now when I say make them worth more lifetime value is a very loosely defined term you can look on the internet there's lots of different definitions for it and what I'm going to do is redefine this as lifetime gross profit all right so LTGP which is what I care about

all right because for example if I'm selling a meal for ten dollars and I make it cost me nine dollars to deliver the meal I means I make a dollar so if I I sell someone and it cost me $5 to get somebody to buy a $10 meal, is that a good business proposition for me? Well, you're making $10. It costs you five. You're getting two to one. Well, my cost of delivering is nine out of the $10, which means I spend $5 to make $1 of gross profit. All right. And so that is why it's GP. That's why I don't like lifetime values. It's a very amorphous term. And so what we're looking for is how much juice, how much gross profit is there over the lifetime of the customer for us. Now, that's not net profit. Net profits after

you've paid all the other expenses of your rent, your payroll, all the other things. But this is just the gross margin that comes in. If it costs you $2 to buy a thing and you sell it for six, then the gross margin's four. Now you still got to pay your warehouse and whatever other things you have going on. Now, hopefully you understand Lifetime gross profit so I can get into the goodies. All right, so there's six ways to increase LTV. The first one is increase the price. Sounds crazy.

But believe it or not, price in and of its. itself is something that can actually draw allure to your products. Do you think of a Chanel purse sold for $20? People would think they're as cool? No, price in and of itself can create a lure around a product. It can put you in another category so much so that people say, this is so much more expensive, there must be something different about this. I'm going to look at this more closely, right?

Number two is that you can decrease the cost. So if I can find a cheaper way to do the thing, I can invest in technology, invest in processes, I can invest in outsource, all these different ways that I can deliver the same thing for less I increase my gross profit so if I had that meal thing that I was talking about earlier and it cost me $9 to make the meal but I found this new automated robotic process that allows me to do the meals for $2 that very much increases the lifetime gross profit of my of my of my of my products and my business but I didn't change anything besides decreasing the cost all right the next one is to increase purchase frequency all right so what this is is getting people to buy again and again and again.

If I can get someone to come to my restaurant today and tomorrow and then continue to come forever, then that's going to be a much more valuable client, right? And so that increases. If I can get all of my clients to come in an additional one time, right, that would increase my lifetime gross profit per customer across my entire business. All right, so if you're tracking with me, number one,

you can increase the price. Number two, you can decrease how much it costs you to fulfill the thing, right? Number three, you can get people to buy more times. All right? And then four, five, and six are slightly related, but different. All right. The first is that you can upsell people.

All right. Now, upsells, very important here. I'm going to define this for you. It's selling the same thing, but a more valuable version. So if you upgrade, right, from a Honda to a Lexus, then you are getting upsold, right? Important. And I think it's important to define these terms because they are different types of sales. And if you can be more nuanced in how you think, you will think better, all right?

especially when it comes to your business. So the next, so that's buying, so I'll give you a food example. So if I go from a, you know, 20 ounce soda to a 32 ounce soda, that is an upsell. It's more of the same. It's either better of the same or more of the same. But either way, it's the same category of stuff. I'm just buying a bigger, better version of it. All right.

The next is a cross-cell. A cross-cell is an adjacent need that I am solving. All right, so in the burger example, sorry, in the in the Coke example, if I sell a burger with the Coke, then that is a cross-cell, right? So upsell is small Coke to Big Coke or, you know, normal lemonade to organic, whatever lemonade, you know, spressile, sun-kissed lemonade, whatever it is, right? That's an up-cell. A cross-sot would be, what do you want with that lemonade? Do you want a sandwich with that lemonade? What do you want with that soda?

Do you want a burger with that soda? Do you want fries with that soda? Right? That is a cross-cell. all right that's a cross sell so you're selling an additional thing this is usually the next natural need that the person's going to have as a result of their first purchasing decision oftentimes these cross sales are actually where the majority of the profit happens so sometimes there are strategies and businesses that are called loss leaders everyone needs this one thing

but the next thing they need is going to be the thing that has all the margin in and if you know your numbers you can build a model around that very successfully all right real quick guys if you can think about how you found this podcast somebody probably tweeted it told you 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.

And then finally, this is one that's overlooked is downsells, right? So a lot of businesses that I'll talk to or they'll consult with, they don't have any downsells. And so that means that there's all this traffic that's coming to their site or getting on the sales calls with them, but those people have needs too, and it might not fit in your primary category. This is especially true if you sell a higher level service or a more expensive service. A lot of times we're still paying for this traffic, right? This traffic, these eyeballs are still yours. And I like to think of this as one person's trash is another person's treasure. There's always a business that can do something with some of the kind of the sawdust, the excess capacity that we have that exists within our business, right?

And so downsells, you can either downsell to someone else's product and get affiliate commissions, get referral partner commissions for sending business their way, or, right, and I like that a lot because you have a nice relationship with another business, you think they have a good product, they specialize in serving that type of customer, and you both benefit. You make money, they get free customers, everybody wins, the customer gets solved. and they're going to thank you for making the introduction as long as you have good partners, which you obviously should. The other way to do this is to have lesser, you know, lesser cost of fulfillment, but solving the same need. So I'm trying to think an example of this.

So yeah, if you had like a done for you service of some type, right, and the person couldn't afford your full suite of services, you could downsell a kind of a done with you or a do it yourself version of that, right? And so making those products, taking the one-time investment of making that product or making that done with you version of your primary done for you service or whatever it is, a lot of times can serve as a really good downsell. If someone walks into a facility for personal training and they can't afford personal training, obviously there's groups and things like that they could do. That would be a natural downsell. But maybe they want to stay at home and you give them an at-home version. So there's all these different ways that you can slice and dice this. But fundamentally, if we have people that were normally not giving us money because they would say, know, but now we're able to monetize them in some way, we have now made more money per customer,

all right? And it's really per person who walks into our business. All right, so six ways to increase lifetime value of a customer, lifetime gross profit. One is you can increase the price and automatically you make more money. Number two is you can decrease how much it costs you to fulfill the thing that you're promising. Number three is you can increase purchase frequency or getting the amount of time someone buys from you, get them to buy more, right, over time. Number four is upselling them. That means having structured upsells where they can buy more of the same stuff or better versions of the same stuff. All right? Cross sales is selling the next adjacent needs. You have to think yourself, someone buys my service. What's the next thing

they're normally going to need? Well, I'm going to sell them that too, right? And it also makes their life easier because they can get all their stuff from one place, makes you more money, everyone wins. And then finally, what can I do with the sawdust? What are all these people who are coming to my business who can't necessarily afford my main thing? And how can I, how can I create something's still going to solve their need, but doesn't cost me that much, so I can still make a good margin on this stuff. Or how can I refer the business out to someone else and still get a kickback from it? And so those are the six ways to increase lifetime gross profit. Now, I told you at the beginning, I was going to tell you the thing that I think is the most

powerful. It's this guy. Understanding price. Pricing is one of the most underutilized levers in the entirety of business. Most people figure out their pricing by looking at the marketplace, taking an average saying I guess I'll charge that the secret that they don't know is that everyone else is broke think about it everyone else is broke and especially if you're entering the small business ownership the reason that small businesses are small is because they think like small business owners and not big business owners that's why they stay that's why they stay small and so don't model small businesses look at the pricing models of big businesses now strong word of caution here there are market penetration strategies that businesses can do because they have

funding and things like that. But if you look at mature businesses, businesses that have gone through the rapid growth phase and then have sustained, look at the pricing model they have because the model that they had, they have already tested and obviously has produced sufficient margins that they are able to continue to grow their company. And so don't look at the small guys. Don't look at the person who's out of shape and try and model what they're doing, right? Fitness is a horrible example because people have great genetics or bad genetics. And anyways, but point is don't look for the dentists who have bad teeth, right? Look for the somebody who's got nice to eat and I'm sure there's genetics there too these are horrible examples

but hopefully you get the point all right is that pricing is the most important lever and I'll give you one quick example on this if something cost me $10 to fulfill right and I charge $20 for it cool I'm making you know 50% gross margin but if I say you know what I'm going to charge $50 for this thing or you know what we'll say 30 so I go from $20 to $30 right I just doubled the lifetime gross profit of my business doubled There are very few of these other mechanisms that can double or triple or quadruple the lifetime gross profit of your business or per client rather than price, which is also why it's one of the ones that people have the biggest limiting beliefs around and the ones that most people struggle to increase. And the good thing is if lots of people struggle to do it, it means that there's plenty of opportunity for all of us.

So six ways to increase lifetime gross profit. There's two ways to grow business. One of them is getting more customers. The other one is increasing how much those customers are worth. And here are six strategies that you can think about within your business of how you can apply these things to your client journey so that you can make those clients worth more without doing any extra work. Lots of love. Keep being awesome. Catch you guys soon. Bye.