The Game with Alex Hormozi - The ONLY Marketing Number that matters | Ep 176

Episode Date: February 3, 2020

"The only number that really matters in marketing from an acquisition standpoint is cost per acquisition." Today, Alex (@AlexHormozi) discusses the importance of measuring marketing success based on cost and lifetime value ratios, rather than just the cost per lead. He walks through each step of the funnel and emphasizes the need to measure as close to the sales stream as possible.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:(1:12) - Cost per acquisition is the only important marketing metric.(3:58) - Aim for a 3:1 or higher LTV to cost of acquisition ratio.(8:21) - Analyze marketing success based on cost and lifetime value ratios.(10:38) - Lead quality can improve 3-5x based on pre-opt-in information.(11:54) - Non-opt-ins due to program details save time and effort.(12:51) - Measure revenue per show to evaluate campaign success.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

to the Jim Secrets podcast where you 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 that we have learned along the way. I hope you enjoy and subscribe. I wanted to bring up something that's very important for marketing. All right. So Jim Watch has been focusing a lot on acquisition. We always have, but especially, I mean, 2020, that's our entire focus for our community. What I wanted to do is dispel some of the myths, dispel some of the myths or, um, I don't know, stuff that people talk about that really just isn't important for marketing. And so I see this stuff all the time you do too.

So and so got a thousand leads in two days, right? Or so and so got $1 leads. And so where a lot of people will direct your attention is the cost per lead, right? And it's usually because it's the top part of the funnel. And it would almost be as ridiculous as saying, so-and-so is getting $1 clicks, right? so-and-so is getting $5 cost per impression, right, cost per eyeball. And so the further up you go in the funnel, and by funnel I mean from like click all the way to customer, the further away from the truth you really get, right?

And so the only number that really matters in marketing from an acquisition standpoint is cost per acquisition. And I would say a secondary number that matters are the two other numbers that would be subsets of that will be upfront cash value and then lifetime value. All right. So those are kind of the three big ones that you're looking at from an act from from from from marketing, right? Now here's one of the mistakes that a lot of people make and a lot of lot of agencies know that last experienced business owners will say these things or maybe the agencies don't know this right. And so

they'll say hey and I just literally got this example from someone in our community. They were getting solicited by a marketing agency and they're like, hey we got you know so and so's lead costs from $30 lead to $20. right and they were marking that as a you know really great outcome which you know is great whatever right but the point is is that the cost for the marketing services was $2,000 a month and when those marketing services were taken into account into the cost per lead now I'm still not getting to the major stuff but I'm just seeing at least showing this the cost for lead the cost per lead went up to $45 a lead and so if anything for the customer that was literally there

testimonial, they had actually made their situation worse, right? And so this is kind of where you start unpacking the data and thinking, like, does this really matter and why is this important? And so I'm going to walk through each step real quick, and then I'm going to tie into why the last number matters, which is cost of acquisition, right? Is that at first you have impressions, which is your cost per eyeballs, which depends on whatever media source you're using, whether it's Facebook, Instagram, whatever, you're getting charged for eyeballs, right?

From there, you have clicks, right? That's when people talk about CTR, click through. Especially unique click through rates, because that's what matters. How many unique people are clicking on the link to get to your page, right? So be the next piece. All right, so now that you've got eyeballs, you've got a certain percentage of those eyeballs

that click uniquely, because one person clicking five times doesn't really matter, and that's why these data points can be deceptive, oh, we're getting one dollar clicks. It's like, well, what if people are just clicking all the time and if you have bots that are clicking, right? Which is actually super common. And then from there, you have your opt-ins, right? Your leads, and you have conversion rate on the page,

what percentage of the people are opting? in. Thank God. And here we are, we have a lead, right? Now, from that lead, you then have a schedule rate of some sort, if you're doing appointments, which most service-based businesses that are listening to this are doing appointments of some sort, right? You have your schedule rate, and then you have your show rate. And then after your show rate, you have your actual sale itself. So how many people of the people who are walking are actually getting closed? And then from that close, you have your upfront revenue, how much cash is collected upon the first transaction, and then the lifetime value, which is what you're expecting to collect over the life of the customer, right?

And so as a rule of thumb, just so you guys know, you want to have a three to one or higher LTV calculation, which means a lifetime value of the customer to the cost of acquisition. Now, that's what most businesses say is like if you can't be above three, you're not really, the business probably won't work. I like to be much, you know, much, much, much harder than Arjun's on average you get five and a half to one on the front end, not even including the lifetime value. Now, the difference is that some businesses are higher profit than others and so the actual lifetime value is taking off of gross margin. Okay, and so that means the cost, so like let me give you an easy example. So with meals, right, if we're selling a meal, I'm just going to use easy numbers here.

So let's say we sell $100 with meals and let's say the cost of those meal, hard costs of just food, labor, et cetera, right? For those meals, let's say is $60, okay? So $60 of that is just hard cost, right? And then now we have $40 left over, which is our gross margin. And so if we know someone's going to make four of those $100 purchases, the lifetime value is not $400, but four times the $40 that's left over, which is going to be 160. And that's what we do our ratio of three to one off of.

And so when you're looking at your gym and you know what your gross margin is, which should be, you know, if you're spreading out your rent between all your classes and you're, your cost per trainer for all the set you know for all the classes then you're going to get your gross margin for fulfilling the service right and so whatever that gross margin is and then from that that's what you're going to multiply out in order to determine whether it's profitable for you to acquire customers or it makes sense for this marketing campaign right now back to the original premise the only marketing member that matters is cost of acquisition right

now the reason I had the two other numbers which is upfront up front cash and lifetime values because let me give you a example, let's say it costs me $10, right, to acquire a customer that is worth, I don't know, let's say $40, right, just for simple math. All right. Now, let's say I get zero of that money and I'm going to get that $40 over the next a year. I'd have to have a lot of money up front.

I don't have a lot of capital in my pocket, maybe outside funding, et cetera, to be able to spend $10 to make that sale. Now, let's counter that with a different promotion. So, right, we're trying to attract a different type of customer. Let's say it's a personal training customer, right? And let's say it costs us, I don't know, $500 to acquire this customer, but we immediately get $1,000 or $2,000, and we know that this person is going to be worth $10 on average, right?

And so even though it might cost us more to acquire these customers, we're actually making more money overall, and we have immediate cash value. And so this is where it gets really interesting into the different shades of marketing, why one number might not tell all, right? So back to the original thing. Moses 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 would like to hear more about it, go to acquisition.com.

You can apply anywhere on the page and talk to one of our team and see if we can help you get there. Would you look at a marketing agency? Ah, we're getting $20 CPMs or $10 CPMs? Probably not. We're getting $1 clicks for what? For what promotion? How do we know they're unique? Are they, like, what are people clicking on?

picture of a hot chick or is it a picture of you just explaining your program? Well, probably you coming into explaining your programs to be more qualified click. There might be fewer of them, but the likelihood that that click becomes a customer is much higher, right? And so then once you have your leads and then you have a certain percentage that schedule, okay, well, how much is my cost per schedule? All right? This is getting a little bit closer to home. This is becoming a little bit more interesting, a little bit more value, right? And then even further along, what's my cost per show? right and so for me I think if I'm if I'm thinking and breaking this down for like if I'm talking to a gym which most of you guys are or you're bringing more service whatever um I'm

going to be looking for marketing at cost per show right now big picture you have to know what promotions you're marketing right if you're running um you know a 14 day free trial compared to a 12 week ultimate transformation you're probably going to get a different cost per show on those but you might close a higher percentage of the people are coming in for 12 week and you might close about a higher average ticket. And so that's where the ratios of how much of costs, compared to how much cash up front, compared to lifetime value, comes into play.

And that's how you can really make analysis of whether or not your marketing is working for your business, right? And so when you take all this stuff into consideration, like the only objective I had for this entire piece of content is just think a little bit more beyond the headline when someone says, I'm getting $1 leads. Well, how many of them are scheduling?

Of the people that are scheduling, how many of them are showing? Other people are showing what percentage of those are buying and what packages, right? And so then it gives you far more truth into what's going on. And those are the types of questions that you want to ask someone if they're telling you

or they're spouting out individual stats that aren't within the larger context of an entire campaign or really even an entire business model. The reason that I've become so obsessed with this stuff is because I continually try and I'm trying to obviously improve our business, but also the businesses of all the gyms that we work with, et cetera, is that as,

As I've divin, I think that's the word, but I've done super deep dives into the data on the Allen side of the shop, which is all the software that we have that automates lead nurture. So that means we get leads to show without any human interaction. And it's been an incredibly long

and incredibly, incredibly deep learning process for me because there's so many more variables than I initially thought. And that's because in a small data set, you can see all the variables. When you see across large datasets, you have a lot more that come up. up, right? The different markets, like people in New York, compared to people in the Midwest,

tend to show up less for appointments, right? There's nothing you can do about it. You shouldn't really worry about it, but it's just something that is a data. It's a variable, right? Now, other interesting stats and the things that affect this a lot, believe it or not, are actually counterintuitive, or maybe they are intuitive. But a lot of times, our community, for example, and this is something that I even espouse, and this is why I'm probably rescinding that. It's like, we started running ads with food, right? Because we're getting shitloads of clicks, right? And we were pushing them over to short squeeze pages, short opt-in pages. So just like name, phone, or email, really no description, right? The thing is that short-opt-pages

tend to outperform longer opt-in page, in general, not always. There's always examples that are different, but in general, they tend to outperform. Now, here's where it gets interesting. The lead quality, as measured by throughput, from the point of turning into a lead to turning into a show, can sometimes be three to five X higher based on what they saw before they opted in. And this is the stuff that I'm learning because, like, Alan starts at the point of opting. Once you get the name from, that's when Alan starts working them to get them scheduled and get them to show, right? But I'm seeing these massive differences between two gyms, even in similar markets,

even running similar promotions, right? Two of them are running, you know, let's say a 28-day transformation or a month, whatever, right? Now, one gym, let's say, is running food picks or picks of a hot check, right? And then they're going to a short squeeze page. If that's what's happening, that that person might get much cheaper leads, but they might not get more people in the door. And that's what you have to be measuring off of when you're looking. And then gym number two might have a picture of people working out or might have a video of people working out with an explanation at the end. You might have a decent amount of clicks from that, but then going to a page that has more explanation of the program, the benefits, etc.,

outlets into the pain that someone might experience now people are more aware and the offer becomes more relevant and some people might think i would argue wrongfully well i just want to get as many leads as i can the thing is is if you tell someone more about your program and then they choose not to opt in that's a good thing they're segmenting themselves out and saying that like they weren't actually interested and so that way you don't waste your time and effort on them right and so if you have a higher the people who are opting in, even if you have, let's say, half as many that opt in, but of those half, they are three times more likely to show. Now you have a marketing campaign that is working better than kind of what a traditional

clickbait looking campaign might be. All right. And so when you're making your marketing, measure what matters, measure and look as close as possible to the actual sale itself and how much revenue you're able to generate per show. because that's going to take into account your close rate. So if all of a sudden people coming in from one promotion are closing in a much higher percentage than people coming from a different promotion,

then that's definitely going to affect whether you think that promotion's good or not. And so you have to measure as close to the sales as possible because that way you're going to have a revenue per show and then that way you can back it all the way to your campaigns and then you'll be able to see whether these campaigns are actually better or not. And if you are getting talked to by

or someone's trying to talk to about marketing and they spout off like, we've got an 80% control. version on our opt-in page. What's the offer and what's the traffic? We're getting, we're getting, you know, whatever. You know, we're getting $2. Cool, but like, what's the offer? What's the traffic? You know, like what's, give me the, give me context, right? And so that is all I I would implore you to do. So if you're thinking about marketing, make sure you're measuring as close to the sales from the possible, taking new account the three big metrics. One is

cost of acquisition, which is always going to be king. And then the two submetrics, which is going be immediate cash value and lifetime value to customer which you want that to be at least three to one for your gross margin not from your total revenue collected big key point