The Game with Alex Hormozi - The New Recurring Revenue Model...and how we have less than 1% churn... 🥩 | Ep 77

Episode Date: September 7, 2018

"Ask them what is the thing that you are struggling the most with?" Today, Alex (@AlexHormozi) shares the secret to achieving less than a 1% churn rate in a recurring revenue model. Businesses can retain customers and increase revenue by treating the model like a launch model and continuously creating new solutions for customers' problems.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:(0:55) - Revolving door churn: most businesses fail.(2:42) - Create new content regularly for recurring customers.(6:24) - Regular communication builds affinity and trust.(11:05) - Ask customers about obstacles, provide solutions.(14:11) - Don't pitch; focus on serving and retaining.(17:07) - Delegate to passionate individuals to save time, maximize impact.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Everyone, happy Tuesday. I hope you guys are having a great day. If you're consuming this via podcast, then I hope you're having a great day too. I'm laughing because I think I'm almost more excited about this because of breaking content rules than making two pieces of content within two hours of one another. But the first one was scheduled, this one I was feeling, and so I think that you will feel this too. So the new recurring revenue model and how we have less than 1% churn. So I'm going to give you something that's just a massive secret of ours that I was debating even saying, for fear of people using it against us, but that would be scarcity mindset,

so I'm not gonna do that. So here's how we've achieved less than 1% sharing, and this is what some of the big players in the space are basically showing. And so fundamentally what happens most times that when people have recurring revenue models, their goal is to get the acquisition, sign someone up on a recurring,

and then pray that they pay until, or pray that they stay, pray and pay. So, like those three. So pray that they stay and pay until they die. die, right? That's the goal. It's like, okay, I got you. Now just like, don't, like, don't email them, don't text them. Don't remind them that they're being built, right? That's the thought, right? And that's what most people do. And it's silly and it's dumb. And that's why most people don't have really good recurring revenue models. They constantly have this revolving door that they're always

fighting against, right? So what is it that Netflix is doing? What is, what is some of the stuff that we have modeled off of to have less than one percent church? So in Legacy, which is our highest, and program, people pay $3,200 a month, maybe more than that, for us to not give them ads. So we don't run anyone's ads. We are not an agency. And despite that, we have less than 1% churn. So less than 1%, right now we've over 500 gyms that are in that level, right? Less than 1% leave, less, right?

How are we able to do that, right? And I can tell you it's not by doing the recurring revenue model that our forefathers taught to us, right? which is just like hope, you know, pray that they stay and pay. It's actually a reverse model. And so in the internet marketing space, there's something called a launch model, right? And so a launch model is where people, you know, you have a customer base, right? You have a list of some sort.

And you have their attention and you spend, you know, you spend a month or two giving content, goodwill, whatever, right? And then after a certain point, then you start to do some sort of like, hey, we got this new thing coming out, it's going to be awesome, and then drum up a whole bunch of marketing and hype, and then they sell, and then they close the cart, and then boom, nothing, no income again, right? So they have to start it all over again. And so Russell even talks about this as part of his story to how he decided if he wanted to get into a recurring revenue model, right? Now, here's where it gets really interesting. I believe, fundamentally, so this is a writer-downer,

for all 18 of you who decided, come on. Fundamentally, the reason that our recurring revenue model has less than 1% turn is because we treat it like a launch model. We treat our recurring revenue model like a launch model. That is why we have less than 1% turn. Now, what that means is you have guaranteed and nothing is guaranteed because you're always in a week-to-week, a day-to-day relationship with your customers, and you think that you're guaranteed because someone is on auto subscribe,

whatever we're going to call it, auto debit, then you are fooling yourself and you are setting yourself up to lose. But you have to assume that that customer, every single month, has to sell themselves on why they should continue to pay you, right? And so despite the fact that it's recurring, it's recurring payments, but it's also recurring effort. And that's where most businesses fail, is that they're not actually doing a recurrent amount of effort for what they're providing.

They're like, whoa, I gave you a point. portal. You have access to it. Congratulations. You can continue to pay me. Right. No. What happens is you have to keep making new stuff just like a launch model, right, where you provide good, you provide content. You provide goodwill, right? And then you still do the same marketing play and hype and get everyone excited and then you make something that's amazing, right? And then you do it again next month, right? The only difference is people will continue to stay in pay provided the thing meets the promise that you made. And so that's where launch and recurring models actually are the same thing. And most people just think that when you get recurring models, you can get lazy, but I promise you that's not the case.

You have to do just as much stuff if you want to do it right. Here's a great example for you because I was thinking about this while I was not in the bathroom. Sorry. But who's got the best recurring game out there? Netflix. Netflix has every single, like Netflix or Amazon Prime, arguably, say either one, but I'm going to use Netflix for this example. So Netflix has the best recurring revenue game on the market. Okay.

They get every single household, every single person to pay 1099 or 1199 or whatever they're paying now, right? Now, they have a huge stockpile of stuff. No one could ever go through all of it. Right? I mean, right now you literally couldn't get through it if you spent the rest of your time watching Netflix. So why do they make new stuff if they already have people in recurring? Because they figured it out. You have to make new stuff on a regular basis even or especially if you have recurring customers

because you have to continue to sell them on the fact that they should still be with you. And a follow up or a corollary to that is that if you don't create new stuff for your customer, then they will assume that the business is no longer active or engaged or the business owner is no longer engaged and it's no longer growing. And then at whatever point and different customers go through different speeds or it takes different period of time, right, for them to then say, I think I've gotten everything I'm going to get from this. I'm going to move on. And the reality is that if you have not created new stuff, they're right. They have gotten everything that they're going to get from you and they should move on. on. And so if you want to hack the recurring revenue model and you want to see like the difference

between 5% churn and 1% churn is 5x. It's not 4%. It's five times the customer value. Talk about how you can acquire customers more profitably. Keep them and never lose them. How do you do that? So like the amount of effort that everyone puts into marketing, right, if I could say, hey, you can get five times the ticket price from someone by taking your effort and put it. into making new stuff for them that who from all these people who have said they're already going to pay you the best people in the world the awesomest people in the world the people who you have the highest potential likelihood of acquiring more money from or the people who've already giving you their information and gone on subscription right and so actually make amazing stuff

and do it on a regular basis the recurring revenue model and the launch model are the same and the people who get that and don't get lazy are the ones who will win and the good news for all of us is that most people are lazy. And so we have this gigantic opportunity to disrupt every single marketplace that you are in or that I am in by simply providing stuff on a regular basis and showing that the business is not stagnant, that the business owner is engaged, and that you are actively trying to solve their problems. And here's the cool thing. Two awesome things about this. One, if you're constantly trying to make new stuff, you are constantly engaging with your existing customer base. So you have a communication cycle.

The more communication you have with someone, the more affinity they have for you. The people that you talk to the most in your life, you probably like the most in your life, right? Most people, I talk the most out of every human being on earth to Layla. I also like her the most out of every human being on earth. You're probably the same way, hopefully, right? And so the more communication you would have someone, the more likely they are to like you. And you watch, like, everyone's like, how do I get known, liked, and trusted? Well, there's how you get known, like they already do know you.

They'll like you more with the amount of communication, and they'll trust you if you keep your promises. That's how you do it, right? So, man, I had this great point that I was going to make, and I totally lost it. But anyways, to wrap up the whole record, such a good point. I can't remember what it was. But anyhow, to wrap this up for everyone, if you want to hack this, you have to understand that growth is going to be part of the game. And the customer needs and feel like, oh, that's what it was, the two things. You're going to be engaged with the customers more. And then the side benefit is that once you're engaging with them, you're understanding

their needs, which means you understand your customer better than everyone else because you're actually talking to them crazy concept, right? And then you know all of the problems they have, which means that you can write better marketing. You can have better creative, which helps you acquire more customers. And then beyond that, right, when you have that, then you can actually create things that solve problems. I cannot tell you the amount of times people message me cold and say, I could solve so many of your, so many problems for your gym owners.

I have this great opportunity for you. I'm like, really, how many gym owners have you talked to? None or one. You know what I mean? And so, I mean, I got approach the other day about, um, Hey, Mosin, nation, 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. About a product that someone had spent like a year and a ton of money developing a software for, and they'd never asked me what we needed. And then I was like, well, it doesn't do this. And that's the only way that I would use it. And then nothing, right? Simple stuff, but no one actually asked.

So if you ask your customers what they want, you engage with them, they like you more, you have better knowledge of them so you can write marketing for them, and then you actually make stuff that they actually want. Now, the second piece of why this is awesome is that once you have a list, a menu of all the problems that your customers have, then you go ahead and make stuff and you give them the pipeline, right, of all the things that are coming out next, right? And so what does that do? It future places people.

It gives people the opportunity to see what is coming, right? And so, for example, let's say that I had, so right now, I'll give you, I'll give you an idea of our pipeline for legacy. So if you're not in legacy, this is what it is. We have Instagram, new Instagram ads, new Instagram story ads that are in beta right now, which means that we test. We spend like 30 grand, 40 grand testing in 20 or so markets to make sure that we have winners on both those platforms. And then I will roll that out. That'll be the first one. The second one will be, we're doing a whole new, we're releasing a whole new set of ads for Facebook ads because we're focusing a little more in acquisition for our guys.

guys. And then we also have Snapchat ads that are getting revamps because I've actually tested them. They work great. But I want to make sure they work in all the markets that we have. And then that will be six weeks out, right? And so if you're a gym owner and you're in legacy, you know what's coming, right? And so let's say even that you were like, you know what? I'm not that into Instagram. I mean, I don't know why you would say this, but I'm just saying, if you were. You were like, I'm not that in Instagram and Instagram stories, but Snapchat sounds amazing, right? Someone will hold on and stay for the thing that they know is coming because they know the value that it will provide will be far in excess of the two months they got billed versus

one, right? Now, how do I wrap this up for like, you're like, cool, Alex, I get how your business is getting less than one percent turn. Good for you. Nice stash, right? No one cares. So how do you use that concept and make more money with the gym, right? Make, new stuff for your customers. Take the exact same template. Ask them, what is the thing that you're struggling the most with? What is it that's getting in the way of your nutrition? What is it that's getting the way of you getting to the workouts? What is it getting in the way of you staying motivated? Why can't you stay week in week out? What are the obstacles? And then they will tell you. And then all you have to do is follow the same process of like, now I have all of the problems.

and then you probably, like, you probably have a few solutions already. You probably have them and you didn't even give them. Right. We're in this like total, like, I've given every solution that I can think of. And now we're just innovating. And that's why, you know, all of our gyms are on the forefront of the marketplace is because they're finding out the new new, what's working right now. But for you, the good news is that body hasn't changed very much, right?

Like the marketing landscape changes constantly, but bodies haven't changed in 2,000 years. But, and psychology hasn't either. you can still solve problems for your people and they see that you're trying, right? And if you actually are trying and putting an earnest effort in, right, they can appreciate that because they like people, I honestly think people care more about intention. Well, they care about the result too, but like you gain some leeway by showing that you care, which you should, right? It's really hard to do all these things and not care.

Side note. So if you don't care about your customers or doing any of this stuff, then you might be in the wrong business. But if you do like your customers, then you should want to solve their problems. And this process that I just outlined is the secret to getting less than 1% shirt. Would you like to 5x the revenue of your gym? Would you like to 5x the lifetime value of your customer? Cool. Ask them the next problem that you can solve. Get all of them, consolidate them, figure out which ones you think that you can solve the best, wait, make the solution, give it to the ones who were struggling the most, not the ones who were doing the best with it, but the ones who said,

I struggle with emotional eating. Cool. Here's what Susan, Sarah, and Jake did when they struggled with emotional eating and overcame it. Let's take that and let's give it to Jessica, Laura, and Lily, I don't know, I just had to think of three names. It doesn't have to be women, not all women. It could be all guys. Those could be all guys' names for all we know. Who knows? You know, it's a new world. and give it to them and then see if it works. Don't give it to your customers unless you know that the solution works. And then what will probably happen is you'll find out that there are some things that worked

and some things that didn't. And then you will take that, fix it, and then give it back to them or give it to three new people who are struggling with emotional eating. I promise there's more than three at your gym, right? And see if that fixes it for them. And then if it does, now what happens? Now you have a whole bunch of people who appreciated the fact that you went above and beyond what you promised them to really solve their problem.

And now you have customer zealots who are telling everyone about how amazing you are and how, like the fact that you went above and began to solve their problem. And then when you do produce the new product, whatever you want to say, they get everyone excited about it for you. You don't need to hype it because they're going to say, this changed my life. It was awesome. You guys will dig it.

Right. And everyone will believe them because they should, because they should have changed their life. Right. And at this point, you're like, well, because, one of the number of things is we don't pitch at our event. So people are like, every single event I've ever been to, I always get pitched and you don't pitch at your events. I'm like, no, you're already a customer.

And so I am pitching you, but you've already given me your payment information. And so I'm just continuing to sell you on why you should keep paying us and stay. And for those reasons, we have less than 1% turn and we have the growth rate that we have and all that stuff. And so I hope that this made sense for you before you go because I know we got 40-some people on here.

Thorough like because if someone can understand this concept, this is like this is the keys to the castle. This is the keys to the kingdom. This is how you win. This is how you win in this marketplace. This is what Netflix is doing. Look at the big players. Look at the people have explosive growth rates.

Look at people who are retaining customers better than anyone else. If you can never lose a customer, you can pay whatever you want for acquisition. Real talk. The reason LBOs don't work is not that they don't work. what? I thought Alex was against LBOOs. I'm not against LLBOs. Most people have such low lifetime value of their customers that they can never recoup the cost. If your average customers only pending you three times, and most gyms that come to us don't have lifetime value with customers that are more than four or five months, right? And so that's why they need a

different acquisition system. Now, if you have a superior acquisition system and you have the lifetime value, then you become a super gym. And that's why we meant all these seven-figure facilities, right but in the very beginning you need like whatever I'm not going to dive down the acquisition hole but you should get the point I hope this makes sense to you this is the secret this is how you do it and if right now you don't have this process in place of continuing to mine your customers to keep them engaged to show them you know like that you care which you should then you're leaving a lot of money on the table and honestly the job of serving customers gets way more fun when you talk to them and actually

solve their problems and that they know that you're trying to trying to do that too. And they also see the things that you have in the pipeline. And as entrepreneurs, we like building things. What a better way to build stuff than build stuff for the people who are paying you already. Right. And then you get word of mouth because they tell your friends. They're like, no, it's not like any other gym I've ever been to. Like they're constantly coming out with new stuff, right? They're constantly trying to solve our problems. You don't hear that from people who are going to normal gyms, right? Right. You want to sit yourself apart? That's how you do it. Okay, sorry. So this was my second piece of content for the day.

This one was from the heart rather than schedule. You can probably feel a difference. But anyways, toss a like up if you want to so that other gym owners can see it so that Facebook thinks that this is a good post that people should actually watch, which if you do care about the industry, then double thumbs and drop a comment for somebody in your gym or your trainers. And it doesn't have to be you. You can leverage other people. Like I'm not running the lead gen betas, but I just. I oversee what the pipeline should look like, but I'm not the one who's putting all the ads in the accounts and double checking and making all the creative. Like I have some oversight in terms of what I think is going to work best right now. But I'm the one doing it.

And so, like, if you have a trainer who's like, man, I love making videos, then you can be like, awesome. Like, go make videos around this. And then give it to the customers that ask for it. And then have them get excited. You know what I mean? Like, it doesn't have to be you. So if you're like, how can I have the time to do that? Asking questions doesn't take time.

thinking about the problems and coming up with potential just doesn't take a lot of time and then the execution you can always hand off to someone else who's passionate about it. Lots of love. Happy Tuesday. Taco Tuesday. Shout a little. A little thumb action.

Anyways, have an awesome day and I'll get you guys soon. Double content Tuesday. Two-time Tuesday. All right.