The Game with Alex Hormozi - The Business Behind Test Prep Tutoring | Ep 474

Episode Date: December 20, 2022

Business doesn't have to be hard. You just have to think through the math and be willing to be embarrassed. Today, Alex (@AlexHormozi) breaks down the business behind test prep tutoring, how this simple business can give you a great opportunity you could make top 1% earnings with no capital out of pocket, and some tips you can do to sustain the business.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:(1:24) - Sell the outcome of the product(5:39) - The business model of test preps is extremely repeatable(13:29) - Your fear gets in the way of inquiring(13:58) - Giving services for free in exchange for feedback, testimonials, and referrals(17:06) - 2 ways of reaching out: ads and referralsFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The best business to start for students where you can earn $1,120 per day in profit, not revenue, meaning you're above the 1% earning in the nation, in the wealthiest nation in the world while you're still in school, pretending to try and get a degree so you can somehow make money, you can do it while you're still in school. And for anyone who's not in school, you could still do it only four hours per day. The wealthiest people in the world see business as a game. This podcast, The Game, is my attempt to documenting the lessons I've learned on my

way to building acquisition.com into a billion dollar portfolio. My hope is that you use the lessons to grow your business and maybe someday soon, partner with us to get to $100 million in beyond. I hope you share and enjoy. You can make $1,100 a day working four hours a day with no inventory, no physical location, and basically no startup costs. And it was one of the three businesses that I almost started before deciding to start my gym. And the business was test prep and or tutoring. So most people go about test prep tutoring the wrong way. What they do is they do is that. they try and get one-on-one clients who will pay them $40 to $60, maybe $80 per session. And so the problem is that they're selling time and they're not selling an outcome.

And so if you want to do the same business model, but do it way better and make more than the top 1% of the United States, if you want to make more than $400,000 or you can do it part-time, whether you've dropped out of college, you're still in college, you still have a job, and you can do it for four hours a day. So here's how the model works. So number one is that you don't want to sell tutoring. you want to sell the outcome of tutoring, which is to get into either a job that's going to pay more or be able to pass a test of some sort or ideally the standardized test, which in my opinion are the most viable tests that you can help some prepare for. Because when you get into a better school,

either college or business school, graduate school, that has a material difference on the network that those people hang out with, the companies that recruit from those schools, and the average salary and earning capacity of those people. And so you can a very real way tie the increase of someone's test scores to how much money they're going to make. If you think about it, college was the original bizop. It was the original anybody can come in and you will make more money as a result of going through this training. Now, you can capture a percentage of that opportunity by being a tutor that can help people move up tiers. So here's the simplest model that works.

That's very time constrained that anyone can do. Number one is that you don't do one-on-one. You do one to many, but you don't do unlimited because you're probably not good enough to do that yet. But you can do semi-private. The reason semi-private is one of the most profitable service models is that you can charge probably two-thirds of what you can do one-on-one, but you can do it with eight times as many people. And so if you have a group of eight students, so you have two-two-two-two-two-on-a-table, you can very easily look over.

It's still a small group setting. They still get the personalized attention. But when they're taking problems, you can have them take turn doing the problem versus teaching someone on the problem. And that way, they still get the personalized touch without having to just sit there while they're doing problems, which is what happens in a 101 scenario. So you're just more optimized for your time. But from a money math perspective, if you charge 35 bucks, it's cheaper than the 60 that someone would charge 101. And you might be better, and that's how you'd position yourself in terms of how much added value you're going to provide. But you have eight people.

So eight people means you're making $280 an hour. You do four of those hours a day. You're making $1,100 a day for four. hours of work. And so if you're one of those people who was a really good student, didn't know what to do, you could make more doing this than you could be being a doctor, not have to go to school, not have to take loans, and still have your entire day and just work from six to ten. Not bad, right? Now, what's cool about this is that in terms of where you do it, you could do it at free libraries when I got tutoring for my GMAT, which is the business school SAT. So I got tutoring. I did it at free

library. That's where we meant to do the tutoring stuff. So like she did it. have to pay for that and I got to do it just at cost, right? And so all you have to do would be to get students that would pay you three times a week and you would need 50 students to do that. That's it. 50 students, three times a week, you do the tutoring or you can do it every day, depending on whatever it is, but either way it works out 35 bucks per session, per hour, right? And if you wanted to, you could increase the length of the session if you so desired and charge it a little bit more. It's either way. But I think $35 a session would be a very nice sweet spot that most people could afford. And you price that, again, based on the fact that they would make $100,000 more a year,

$50,000 more a year if they go to these better schools. All right. So let's walk through the simple math here. If you have eight people times 35, that's 280, 4 hours in a row. You go back to back to back, you don't even move if they come to you. So you got $280, $280, $280, $1,000. It's $1,100 bucks roughly per day. You can do that seven days a week, because let's be honest, you're only work in 28 hours, all right? So you literally don't have to do anything during the day. You could work a full-time job, you could drive Uber, you could play video games all day and then just do two during four hours. And with that, if you had class A three times a week, class B three times week, and then on the extra seventh day is the people that want the extra session to catch up,

which you could have and they could still get charged for that. But from a curriculum, you have a three-day curriculum that you teach to class A and class B separately, and then the last day you do as the makeup for those people, but they would still have to pay the same rate, but that way they don't fall behind. And the beauty here is that if you do something like this, it doesn't take a tremendous amount of time and it's a very referral heavy business. So as soon as you help one person improve their test scores, which by the way, test prep is extremely repeatable if someone does the work. So they did a research study, which is why I wanted to get into this business, was that the test scores that people have on SATs and GMATs, and GMATs,

is directly proportional the number of problems they solved before taking the test. So it's a very clear input-output equation. So the more problems someone does, the better their scores are. And I love those types of equations. And when I learned that one research graph, I bought every single GMAT phone book that I could find at Barnes & Noble's, and I did all of them. I bought eight books. It was about this much. And I did every single problem in all of the books.

And that's how I scored above Harvard's GMAT mid-score. And it took me four months to do that. And so I worked personally four hours a day doing problems. And then on Saturday I would do a test to test my score to see if I got better. And what ended up happening near the end is that I would start reading the questions because there's only so many ways that they can ask the question. And it's kind of like chess where there's pattern recognition. You just start seeing the board enough times that you're like, oh, this is one of those ones

where I have to flip this into that. I didn't even know how to do the math. I knew how to solve that type of problem. And so you probably have about a hundred different problem sets in your head where they just change the names and the numbers, but the way you solve it is the same. And so you just need enough exposure to that that you can predictably get your scores up because I wasn't a perfect student. I was a pretty good student. But once I realized how to unlock the grade score, because this was something that was going to make me more money, I was more motivated to be good at this test than any test I'd ever taken, which is why I got so motivated to help other people do it too, which is why I started to think about that business. So if you are somebody who was pretty good at school, was pretty good at standardized test, this is a

really great opportunity that you could make top 1% earning with no capital out of pocket, no rental space, no buildout, no nothing. And all you have to do is go on college campuses, go on high school campuses, put up an A frame, hand out flyers, and you can very quickly get yourself your 50 students. If anything, give a couple of sessions for free so you can get lots of people to say yes, and then upsell a certain percentage of them. That's it. It doesn't have to be a complicated amount.

Maybe it takes you six months to build up your student base to be at $1,000 or $1,100 a day. And would you rather do that than spend four years in college go into debt and not make money the entire time and have to work full time to do that? I don't know. Your call. But I think it's one of the best business opportunities. It's why it was one of the ones I was thinking about doing early on. And if you really want to scale, so this is the 201 level of this, is that you can have other people do those things for you because then you just get really good at getting the students to say. sign up and say yes, and then you templatize your process for how you get them to do more problems, because that's the most predictable way of increasing their score. And so then you have a teacher who you can pay $50 an hour, and then you make the spread between the $2.80 and the $50. And many teachers will happily work for $50 an hour. And if you really wanted to run really crazy margins,

which I prefer to, I like to have my service-based margins at 80% or higher, which means that my cost per unit would have to be below 56. So 50 works there. But that means you can pay good people. They could get, they could make more than they're making with the real job. They're happy to do it. The students are happy to pay it because it's less than one-on-one. And then all the while, you get to scrape everything off the top without ever having risk. Mosy Nation, real quick, if you are a business owner that has a big old business and wants to get to a much bigger business, going to $50, $100 million plus. We would love to talk to you. And if you like that, we'd like to hear more about it, go to acquisition.com, you can play anywhere on the page

and talk to one of our team and see if we can help you get there. So let's look at this tutoring of the going rate of, let's say, 60 bucks an hour. All right? So if you charge $60 an hour and you're doing one-on-one, which is the typical model that most people will do. If you did one-on-one, then you worked four hours, you would make a total of $240, all right? This is how crazy this is, $240. Versus doing one-on-eight and charging $35 with eight people there, you make $1,000. 1100 for the same four hours. So this is when we talk about opportunity vehicles. So this is four and a half times more money per unit of time. And because you have this model and not the one-on-one model, you also can scale this one because you can have enough margin to pay someone

else to do it and still have the margins to run the business, market, it sell, grow, etc. Right. Whereas if you were just doing one-on-one, it's just you trading time for money, but with nothing left over. So you're forced to continue to make that trade until you decide to stop working, right there's no scale in the game because if you needed to pay somebody else the most you would pay if you wanted to keep an 80% gross margin would be 12 bucks most teachers probably aren't going to go there for 12 dollars an hour but you could get them to happily finish schoolwork at 3 o'clock come to your thing at four and then work from 4 to 8 tutoring for 50 bucks an hour 200 bucks they're probably going to make more tutoring at your thing than they do from their main job and then oftentimes i'll bet you many of them

would say bro to their other teachers dude i'm making 200 bucks a day working four hours a day instead of making whatever they make now, $100 a day, I think, teaching all the classes they have to teach with students who don't want to be there. And so if we're looking at the earning capacity, it's four and a half times less money. So you'd be making less than $100,000 a year using the exact same amount of time. And then ultimately having a higher price thing for people with a lot of that session time being wasted with them just doing the problems rather than you actually teaching them. In terms of packaging this, I would prefer to get people to prepay because I don't like transactional one-off things because it ties. it too close to the time I'm spending, but I would work it out so that it would be $35 a session. So I could probably estimate, okay, in order for us to increase your child's or student or your

own score, every thousand problems statistically gives you an extra 20 points. So I don't know that math, but whatever that math would be, that would be obviously a core part of my selling pitch. It would be like every thousand problems is this. And so we have to get you to do this many problems, which is going to take this much time. And so I would sell the goal, which is how much do you want to increase your test score? So they're like, I want to increase my test score by 80. Then I'd be like, all right, that's 20 times four.

A thousand is each 20. So you have to do 4,000 problems. On average, a student can do 1,000 problems every month. So it's going to take us four months for you to get there. And right now, given that amount of score, we'd price it at whatever, the three sessions a week or four sessions a week times 16 or 17. So it would be 35 times 4 times 17. That would be the package price. And if they want to prepay, I would knock, you know, five bucks off a session.

And that's it. And that way I can give them a prepaid discount. So if you were a kid who's really good at school or has pretty good test scores, the first thing to do is hit up your network, right? All the people that you know and go knock doors. And I say that figuratively. But you ask people, hand out some flyers, and you're like, that's crazy. That stuff doesn't work.

It totally does. But also DMing people that are in your high school because many of them probably follow you or you follow them. You know who each other are. And you can say, hey, do you know anybody who needs test prep services? I got this score and I move my score from X to Y just doing this. And I'm walking people through it so that they can get the same test scores. Because I was able to get into a better college as a result of this score.

So it's for saying, here's where I was. Here's what happened. Here's the method I used. Here's the outcome of the improvement. Do you know anybody who'd be interested? So you're not soliciting them. You're asking if they know anybody. Nine times out of 10, they're going to say, well, me.

But it doesn't seem pitchy if you're coming at it from that angle of asking for the referral. So I would probably use a DM strategy because it's the most, it's super easy. You don't have to, most people are afraid of actually talking to people. So I'd probably be behind a computer doing it that way off of whatever social media follows I had. And I would also be DMing parents and adults because I have no shame personally. And if you want to start a business, you should probably get rid of your shame because you're going to get embarrassed. But if you do that, then you're just trying to provide goodwill and ask if anybody needs help. Like, what is wrong with asking if they know anybody who needs help with something? Nothing. Just your own fear. So you just, you just

ask lots of people. And if you ask enough people and say, hey, I'm giving a free session to show how my whole method works. And I'll do it for free. And if it makes sense for them, awesome. And what that is is really more of a half assessment into a sales pitch. You do a little bit at the beginning, show them one easy win that they can have. They see an improvement. And then you transition like, this is how I teach. Do you like that? They would see an immediate benefit. And then you can convert them. So let's talk promotion real quick. I said you could do DMs, but there's a lot of things you could do. First off, I always still adhere to get your first five or first 10 for free. And you're like, what do you mean? I have to work for free in order to start a business. Well, welcome to

every other business where at least you don't have to spend money and time to work for free. Or even better, spend money and time and then lose money for the first six months before you even start making your profit. So boo-hoo, get over it. So yes, you give the first five to ten for free and you do that. And if you want to, because this is something that they have to do work too. You say you have to do your homework. And every day you don't do your homework, I will bill you. Right? So that you have some skin in the game. And then they might even like that as a sales point where they're going to be way more motivated to actually do the work. And then in so-do, they will get even better test scores. And so I love those kind of reverse incentives, those

sticks and carrots. And so at the end of that, there's three things you're going to ask for them. You're going to ask for feedback on things that could be better. You're going to ask them for a review testimonial, and you're going to ask them for a referral. All right, there's the big three that you're going to do in exchange for doing the work for free. So you're not really doing the work for free. You're doing it for exchange. So get over the whole life, I'm not valuing my time. Shut up. So that's level one. You get your first 10 clients by saying you'll do it for free. That's number one. And if you're You can tell people, hey, do you know anybody's looking for that? I'm looking to start a little thing.

Here's my test score. Here's where it went. This is the outcome I achieved through my unique method. I'm taking the first 10 guys for free because I want to get crazy results. So if you do know anybody, you can better believe that I'm going to give them amazing results because I need them to get great results to start the business. That gives even more incentive to do it. Now, if you get more than 10 people who really want, then guess what?

You can just start charging, right? Like, congrats, you just did it. Now, from there, if you have your first 10, right? Now, mind you, remember we said we have four classes a day of A and B. So you have slots for 32, 64. You have 64 people that you can do this billing for. So like even if you give your first 10 slots away, who cares? Right? And if you're doing one on eight or whatever, you can say, this is my time. That way you only have to give one hour. So it's still, you can still decrease your actual cost on doing it with these students. But once you have the referrals and the testimonials, guess what step two is you post the testimonials, which is here's the score of what it was. This is the method we did. Here's the result afterwards. This is the benefit they experienced. Let me know if you're interested to.

Very simple. Like, this is not complex stuff. They post, anybody who engages, you can DM them with a better offer of like, hey, that was my first 10. My next 10, I'm doing for half off, right? Which, again, only you know what your price is. So, like, you can double your price and cut it in half, whatever you want to do there. I make no comment. You can keep always doubling and cutting in half as you keep raising your price, whatever.

But the point is that you give them some sort of incentive. to do it. You could even give them an extra session that day C that's there. You give them as a bonus for, hey, if you need a makeup day, I'll throw that in for free if you prepay. So that's a benefit for prepaying the whole package. And so you would do your DMs early to get your first 10. You'd start posting hacks and tips, and then you'd interrupt those four or five posts of tactics that are actually working to improve their test scores with a testimonial. Right. So those are not super hard right hooks because they're inspiring for a lot of people. People think it's cool. And then you have call to actions which drive into your DMs and then you can upsell them from there.

Beyond that, the other two ways would be reaching out to people who you don't know, not just people you do know, and then running ads, right? But this would be most people could just do people they know referrals, partnering with something else that would make sense. So for example, going to sports teams where they need tutoring and saying, hey, I know some of these guys are worried about getting into school. I know they're not trying to go to Ivy, but they need to get above an X to get in with their their sports scholarship or whatever, you can go to the teams, it spreads really quickly, and then all the lacrosse dudes or all the hockey dudes could come at the same time after practice. And so you can go into little ponds of students or likely candidates, and then

you can go fish in those ponds and bring them in. Right. And if you do a good job, the word or mouth will spread. So you could do all that stuff that I just said on your own with basically no help and get yourself to a top 1% earning income, which is better than anything you're going to get after college anyways. You can do it in six months without risking the money at the time. the debt. But if you wanted to go super sand, you want to go God mode, you can do four teachers rather than one, and they're now getting paid 50 bucks an hour. You're still making your same 280, right? But you're making 1,100-ish per hour because you've got four guys working. So at the end of the day, just that half day of four hours with four people working, you're making 4,400

day. And you paid each of them $200 each. So $800 off $4,400. So you're looking at $3,600 a day. does anybody know what it takes to make a million dollars a year in income? Survey says, 3,300 a day, you're at 36, guess what, you now make a million dollars a year, you're more than above the top 1%, and you do it with four employees that are part-time and some hustle. Business doesn't have to be hard, you just have to think through the math and be willing to be embarrassed. And not judge yourself based on six months of work, but judge yourself against four years of not working and the debt and the time that you would have gone into the alternative that you were considering. So if you were all of a sudden, for whatever reason, cool with doing college in order to increase your

earning capacity and spend $100,000 on four years plus not making money for those four years, plus living and food and all the other stuff, just compare that apples to apples. If I just did this one tutoring business for four straight years, hustled the way that we just did, promoted it like hell, gave the first 10 away for free, do I think that four years from now I would be better off than the $100,000 of debt and would I have more savings after four years of doing this business than I would it at the college? My bet, probably.