The Game with Alex Hormozi - The EXACT letter I used to INCREASE customer prices...don't chicken out | Ep 318

Episode Date: July 22, 2021

Once you committed, stick with it. Today, Alex (@AlexHormozi) talks about the process he went through to create the letter on raising prices on customers, the right and wrong ways to increase prices, and the importance of communicating your plans properly.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: (1:54) - Price increase letter: inform customers about changes and purpose.(5:12) - Attractive price communication is crucial.(7:59) - Inform customers about future plans, benefits, etc.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

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. What's going on, everyone? In this video, I'm going to show you how to raise your prices in a tactical way on your existing customers. So it's one thing to raise your prices on new customers, which for many times, you know, that's something that you have to do because you need to, you know, you want to reinvest in making the business better, you want to cover some capital expenses, or you just want to make more money, which is fine.

And the number one lever on making money is what you're pricing at. right we've done this in thousands of businesses now and there's a process that we go about this because if you raise it on existing customers be ready to have people be upset but here's why this is so important so let's say that your business runs at a 20% net margin which is fine right let's say that you just for number's sake you charge a hundred dollars a month if you're running a 20% net margin and you're at a hundred dollars a month a 20% increase in pricing would double your profit a 50% increase in pricing with three and a half x your profit that's pretty good if you doubled your price you would 6x how much money you make.

And so this is how big of a lever pricing is on how much profit you make. And so knowing how to raise your prices, obviously would be something that would be very important. So there is a right way and a wrong way to do it. So what I want to do is show you the right way, because the wrong way to do it is you send an email out saying, hey, we're raising our prices, you know, screw you.

And you'll get a ton of customers who leave you and then you'll end up being worse off than you were before. But I did this in my facility, this is one of my first businesses, and I actually had a third of my customers cancel, but I tripled my price. And so I was able to keep two thirds of my customers at three times the price and lose one third of my biggest, my employees called it the culling. We got rid of all the problem customers in one fell swoop.

So if you have a pain, a bunch of customers who are always complaining about stuff, you might want to do this because you'll get rid of all the cancerous people and keep only the people who love you. And when I did that, I doubled my revenue. And here's what's even cooler. My profit went through the roof because I even had to service a third fewer customers, which was awesome, all right? And so the way that we do this is through a price increase letter.

And if you're curious, my Jim Launcher Secret book is a book that is about gyms, but it is a business book that is simply applied to gyms. If you want it, you can grab it. It is not how I make money. But let's say, let's walk through this. So you have your letter to increase prices, right? Now, there's a format to doing this. All right. Now, it's not about you.

It's about the prospect. It's about the consumer. All right. So the first thing that we want to do, right, is, you know, we're going to say, hey, you've probably known that we've been, you know, growing a lot. You've probably noticed a lot of the good things that are going on. right now and so that's why I'm writing this letter all right so it's like why am I doing this why am I writing this letter to you what's the intention of the letter all right the second is we're going to talk about what we currently are doing all right

and so this is allowing you to re resell them a little bit on what you're currently doing the value you're currently providing them because sometimes they forget because they might only use one aspect of your service and so if they're like oh wow there's a lot of extra stuff that I'd even know about and believe me I can't even tell you the amount of times people read this letter and they're like I didn't even know you were doing all this stuff right and so you want to list out you know the stuff that you're doing and say okay you know we hire and retain the best talent you know we have we offer continued education for our employees we you know we we're providing new uh

software's and equipment uh to our members that that we always try to keep up to date that's what we're currently doing they're like oh i didn't even think about that so the goal here is to is to get them to think about your costs trying to get them into the mind of you as an entrepreneur to the best of your you know ability right like these are the things that we incur in order to provide this value it's not like we're just taking all the money you give us and putting in our pockets because that's what everyone always thinks. All right. The next thing we do is when we say, wow, despite all this stuff that we're doing,

we want to do even more because we're losing our minds because we just will provide crazy value. All right? And so it's like, we want to, like, you know, we're currently a rag-tugged bunch of champions, our facility, if you have an actual facility and if you're online, it's like, you know, we've got a lot of stuff that's duct tape together. We want to really, you know, level up the brand and we want to do it for you, right? So you want to tell them what's coming.

So this is like we want to add these X, Y, and Z things. We want to add specialty programs. We want to add higher levels of service. We want to add, you know, events to our, to our business. We want to add all these things, right? A massive improvement to our level of service. These are all things that we want to be adding, right? And then what I like to do is I like to tie this, tie this increase to a promise of values.

Okay. Now, what I mean by that is. 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. I want to tie this to values that I ascribe to that no one can contest. So I can say, I have made this promise to you. And with integrity, I can no longer provide the level of service. that I have promised unless we do these things because I will not stand here in this marketplace and say that we are the best at XYZ unless we do these things and the only way for me to do these things is for us to have a corresponding increase in price all right now mind you when you're communicating the price it's also important to communicate the price in a way that's you know attractive so you don't want to say hey it's going to cost you five thousand dollars extra a year you would say it'd be better to say it's a hundred bucks a week right sounds like a lot less right you can break down even more it's 15 bucks a day it depends on on who we're talking to and what level of service you have, but you can break it down to weekly or break it down to daily, and that's why insurance quotes people in days, it's only a dollar a day,

right, so that you can do this and it will minimize what the perceived cost is. So ideally you want to maximize by saying, this is all the stuff we're doing that we didn't even know about. This is the stuff we want to do that's even more than that. And this is how little it's going to cost you. And the reason we must do this is so that I can maintain my integrity to you and the promise that I've made you. I am fervent that this is something, I'm planning my flag here is that I demand to be the best in the marketplace. And for us to do this, we must continually invest. And for us to do that, like, this is what is required. Right. And then, and here's what's cool, is that I like to add a little PS at the end. And that little PS is to give

perspective. All right. And what I do here is I say, if this is going to materially affect your life, if you're not going to be able to pay your mortgage, you're not going to be able to buy groceries for your kids, please reach out to me. And we can figure something out. And so by saying that, you automatically give perspective to everyone that listen. No one's going to go, homeless over this thing right no one's gonna lose their house because we're raising the price of our XYZ right right but we open the door for discussion for the people who feel obligated or feel the need to do this now if you make an announcement like this which I recommend you doing via video and be a direct mail you want to

make it and then also turn the comments off on whatever the post is because believe me you don't want to deal with that as you just say hey I don't want this to be you know a gossip forum if you have anything just bring it to me directly out of respect for you I want to deal with these you know face-to-face and not over the keyboard right and so it's an easier way to also manage and mitigate any kind of negativity that happens and believe me if you raise your prices you're going to have people are going to be squeaky wheels and it's in their best interest to get you to not raise the prices so just don't chicken out

once you commit to it stick with it all right because i'm telling you if you raise your price like i just told you if you have a 25 percent margin and you raise your price by 25 percent you double your profit all right so i told you i lost a third of my customers but that's because i tripled my price and most businesses don't realize how much of a pain it is to find another one of your business and so if you can capitalize on that and you can usually eke out an increase in in in in revenue and profit as a result you will be far out rewarded by making that change and the people who do leave are usually your worst customers and you've been wanting to get rid of them anyways and

this gives you a great time to do it so if you're gonna raise your prices this is the way that I do it to existing customers I write a letter I tell them you know why I'm set I'm setting the stage for why we're doing this I tell them all the things that we're currently doing that they don't know that we're doing and you probably do tons of stuff it's It's good to list of stuff out. Then you talk about the future of what's going to happen, what the benefits are going to be to them,

to what they're about to enjoy, and how that's going to impact them in a real way in every single time they see you, they experience your business, they interact with you, and what benefit of the benefit is going to occur. And then finally, I like to end with values and perspective. All right, so probably values are right here.

So values is kind of the wrap up. So just consider that 3.5, sorry. 3.5, right? And then you have your wrap up, which is, hey, big picture. this isn't going to make you or break you. You're not going to go homeless because of this, but if you do have something that's going to materially affect you

because you have that anchor, it makes it very easier for you to have that discussion.