The Game with Alex Hormozi - Why Business Owners Beat Fitness Professionals | Ep 198

Episode Date: April 17, 2020

"When you spend money on marketing, you make more money than you think you do, right? You just collected other vehicles." Today, Alex (@AlexHormozi) discusses the importance of gym owners thinking like business owners, making decisions based on math rather than emotions, and being willing to make short-term losses for long-term gains. He also shares examples of how marketing can have secondary and tertiary effects on revenue and how offering multiple options can increase profits for gym owners.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:(0:25) - Gym owners must become business owners to survive.(2:54) - Understand the lifetime value of a customer.(5:35) - Gym Launch made people money 4-to-1 in 24 hours.(9:10) - Be willing to make short-term losses for long-term gains.(11:05) - Break even on day 30 instead of day 1 for more profit.(13:42) - Think with math, not emotions for success.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

When you spend money on marketing, you make more money than you think you do, right? You just collect it in other vehicles. Welcome 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. Good morning, everyone. Happy Friday. Hope you guys are having a fantastic Friday end of your week, but let's be real. Weeks don't exist anymore.

And so I wanted to make something a little bit different, less COVID-related, actually about Bid. business what a concept and so I want to talk about why business owners beat gym owners and so the only way that you can survive as a gym owner is to transition from being a gym owner to a business owner and I thought there's one thing that kind of started this started this thought process and then I want to tell you a story that I think will really drive it home so we have some pretty you know sweet marketing tools that we pay thousands of dollars a month for for attribution tracking and so that means is we can follow a click from a click on a website to a

post to something else to two pages and then they end up opting in and then whether they buy. And we can see that over a six month period, right? And so we can see a buyer journey. And basically after looking at all of the data that we have access to, I have one simple conclusion from that, which is whenever you market, you make a lot more money than you think you do. And it's because there's all of these secondary and tertiary end results that start like these secondary ripple effects that happen from your marketing. And so, in the beginning you're marketing and you're just trying to convert through whatever offer you have and that's your direct attribution and usually have a decent most businesses have a decent level of attribution there now I was talking to a group of entrepreneurs and one of them has a cream company and they were selling about 30 million a year and he was looking to be acquired by a company that's doing a billion dollars a year in cream sales he said the one difference that I saw between my company and their company is that they were able to better attribute how much money they were making across all of their market He said, and there were channels where they were losing money on their marketing, but net across all of the other channels were recouping their ad expenses.

Now, I say that as just kind of preface to the next story, which is, so my takeaway from all of that stuff and the knowledge that we have is that when you spend money on marketing, you make more money than you think you do, right? You just collected other vehicles. And so that leads me into kind of an example story. I was going to break down all the math and then my VP said you should just tell the story and not include the math. part. And so what I wanted to say was this. So the reason that business owners beat gym owners and the reason that the biggest fitness companies in the world are not owned by fitness professionals is because fitness professionals don't think like business professionals. And so here's the decision that I see made over and over and over again that is costing you money and is the reason that you're not growing. So Jim Watch grew and has grown to be the biggest player in the

space to my knowledge, not because of, I mean, well, because of lots of things, but one of them is because I'm willing to go into a loss to acquire a customer because I understand what the lifetime value of a gym owner is for us. And so there was a point, I would say, probably six months ago, maybe nine months ago, where we were net negative for three months on the acquisition of a customer before turning our first dollar of profit. And because of that, when I talk to other people who are in the space, they're like, how do you acquire so many gyms? Like you're doing five times, 10 times as many gyms as we are. And they even tell me their cost of acquisition,

and believe it or not, their cost of acquisition is cheaper than mine is, right? And so a lot of people think that we're amazing marketers and all that stuff. And I would actually don't think we are. I think we're just good at making business decisions. And so what I want to do is relate that in layman's terms to a story that I think makes sense.

So if I were to tell you or a fitness professional, not you, somebody you know, right, hey, give me a dollar and I'll give you a dollar back tomorrow right some of them would be like okay or said or give me a dollar and I'll give you a dollar in 25 cents back in seven days or give me a dollar and I'll give you two dollars back in 30 days or give me a dollar and I'll give you five dollars back in 60 days or I'll give me a dollar and I'll give you ten dollars back in six months right but you can only get one of them and So that's point one.

So you can only pick one of those, one of those things, right? And here's the kicker. If you choose the six-month one, I will let you put as, I'll let you put $200,000 and give me $200,000 and I'll give you $2,000. For option B, for the two to one or whatever, for day 30, you can only give me $10,000, right? For the 60-day one, which was 4-1, you can only give me. $50,000, right? And so what you're seeing here is now think about that trade. Now maybe I give you too many options. Let's just say day one is one-to-one, at day 30 or two to one, day 60 or four to one and day day you know six-month

you're at eight to one right. We'll just use those because it's simple. If you have that example, most of you hopefully would say I would give you as much the highest amount that I could that I could put money into. So probably the six month one where you can give me 10 to 1 back in six months, right? That seems like an obvious choice. The problem is most gym owners don't make that decision when they're running their actual business. And so the reason gym launch exploded was also because we found a way to make people money four to one in their first 24 hours, right? And it allowed people who weren't business owners to make money like business owners do, being super transparent with you, right? That's what it was, right? And right now

we're on the precipice of another one of these opportunities that's coming up with remote, which is amazing. And I'm thinking about how to best play these cards myself because it's, it's pretty exciting. But in this scenario, let's say, like I don't want to add too many variables to this, but let's say the new service that we're selling has an 80% or 90% margin to it. Ooh. So we're actually making more. more money on the back end. But here's the kicker. You give a dollar today, I give you 50 cents back tomorrow. I give you a, you give me a dollar today. I give you a dollar back in 14 days. You give me a dollar today and I give you a dollar back in 30 days. But from that point going

forward, you continue to make all profit after the purchase, right, of this dollar exchange, right? That's kind of what remote is looking like right now, is a fucking cash cow. on the back end. And it's understanding what the lifetime value is. And lifetime value, here's the big thing that everyone needs to understand across the fitness industry. The rules of how you ran your gym with the metrics fundamentally change because the margin of the service that you're providing is not the same. An in-person brick and mortar business runs significantly lower margins than a remote-only service. right hugely different the reason that most gym owners can't have to make as much money on the front

end typically is because they only make 12 25% on the back end in terms of of the of the of the of how much revenues brought in so let me make this real for you if you had a client that the lTV was a thousand dollars right so you're billing a hundred dollars a month 10% churn is a thousand dollars okay now if you're making a 25% margin right And you want to do it off gross margin, right? Let's say, so you're making $250 for you to take home after that person has been serviced, et cetera, right? And so you're only putting $250 in your pocket,

which is why so many gyms loved making $500 or $600 up front because they actually subconsciously realized they made less money, right? Doing it the other way. The difference is now in a remote setting, if you have a $1,000 LTV, you're taking home 800 of that, right? It's much different.

because you don't have all of these ancillary costs that are associated with running a brick and mortar in-person business, right? You don't have the toilet paper. You don't have the rent, right? You don't have the front desk person. You have to always staff there. You don't have, there's all of these little costs. If you're not sure about what they are, just look at your bank statement. Like, you'll see them, right?

That aren't there in a remote setting, which is why some people want to go online, the difficulty is acquisition, right? But if acquisition is taken care of because it is right now, because people are very, very comfortable buying online right now because they have to. Everyone is learning to buy online. The entire buying ecosystem is fundamentally right now for our best interest as a community. They're allowing us to go into a high profit margin service. It's fucking awesome. So if you have the frown, turn it upside down because right now is when it's hot and I'm really thinking about how to structure this thing to best crush this for the whole industry and for us too. I'm thinking about how I can hire trainers so we can do the fulfillment because I'm seeing the numbers and it's awesome.

All right? And it's understanding, are you willing to put a dollar in today and then make one dollar back in 30 days knowing that that thing will become a $200 a month profit stream every month thereafter? That is the decision that most people are not willing to make. And that is why gym owners do not be business owners. Hey, guys, real quick, if you're new to the podcast, I have a book on Amazon called $100 million offers that over 8,000 five-star reviews and has almost a business. perfect score. You can get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand hours into writing that book. And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more and ultimately make more dollars so that later on in your business career, I can potentially partner with you. So that's my give. Go check it out, Amazon and back to the show. Because they do not know how to do math or they do and then still don't

make decisions based on math. It's the only difference, right? The guys who I know who own the biggest businesses take massive losses in the acquisition so that they can acquire more customers so I'm going to give you a different example of this if I said I'm only constrained by breaking even on day one day one of my ad spend I may be able to acquire 10 customers per month all right now if I know my churn is 10% then that means that my company can grow to a hundred clients a month and it will never grow after that because I'm only bringing in 10 and I'm losing 10% of 100 which is 10 all right so it evens

I bring in 10, I lose 10. I bring in 10, I lose 10. And it will not grow past that. Okay? And that's because I put a constraint on how I was willing to acquire our customers, which is I have to break even day one. Now, if I said I have to break even by day 30, I could probably sell three times as many customers just from that one switch of going from break even day 1 to break even day 30. So what that means is instead of having 10 new customers a month, I could sell 30 new customers a month. And if my churn remains the same of 10%, then my company goes from 100 max to 300 max. So simply by shifting when you're willing to break even on the customer, you can make three times more money simply by

shifting the break-even point from day one to day 30. All right? Now, if you wanted to be an absolute fucking badass and you're like, I want to take over the industry because that's who I am, then you would say, maybe I shift my dollar flag over to day 60, right? That's where I'm willing break-even and then I look at my acquisition and think holy shit I can actually acquire 60 clients a month or maybe more realistically when you shift it to that extreme it may be not just a 2x increase but it may be a 5x increase I may be able to acquire 150 clients a month if I'm willing to wait 60 days to recoup my initial investment now if you think about this in terms of in terms of

investment opportunities like what investment opportunity can you break even in 60 days on none except for marketing right and if you've built a mousetrap that is how one of the best ways to create wealth is by owning a business right it is and fundamentally what is the stock market it's buying and selling businesses it's what it is it's just small pieces of it but the fundamentals work the same way all right so if i now have this new company where i'm willing to spend for 60 days i'm willing to lose a dollar and then 60 days later make my for my dollar back right take 60 days and the reason that i'd be able to acquire that many more customers is that typically in any market you have your rent

Red hot buyers, you have your people who are most interested, right? And then you have warmer audiences, and then you have colder audiences. And so what this does is if you're willing to break even at day 60, you can actually go after a much wider slice of the market. And it may cost you more to reach these people or to convert these people, but the bucket is enormous. You're talking 10 times the size, 20 times, 50 times the size of the market that you can go after, all right?

And so what that means is now I've got 150 clients a month that I can, that I'm bringing on. Now that may sound unrealistic to some of you. We've got guys right now who are selling 66 every two weeks into remote. All right. 66 every two weeks. That's one person. I'm thinking, man, I'm pretty good at operations.

I'll bet you I could do more than that. Right. And so that person is already on pace for doing 130 new remote clients in 30 days. All right. So if my turn is 10%, that means that I could grow my remote business to 1,500 clients a month. All right? At 200 to 300 a month. Now we're talking.

$2 to $3 million a year, all in a high profit margin service that isn't geographically constrained. The opportunity becomes far more interesting. So to pull this all back, the big takeaways that if I can give them to you, your ability to win will be on your ability to make decisions with math and not emotions. Right now for you to be able to break even in 30 days on a customer is already happening pretty much across the board. all right but if you're willing to just make decisions that way and the beautiful thing is that the economy's already structured like that you can get a credit card that you put the card down you pay for all your acquisition costs 30 days later you recoup the money you pay it off and then everything you have as a result of spending that money the customers and the customers and the customers and the customers and the customers and so then you pay off your acquisition cost to $10,000 right so that's yours someone lent you the money 10 grand for 30 days and then you brought in off of $10,000 a hundred customers fantastic and so then you pay off your acquisition cost to $10,000 right so that let's say you made $100 on each of them after everything is considered. So you pay that off.

And now you have 100 customers and then the next month you get 20 grand. Right? Except no one thinks that way. No one makes those decisions. And so if you want to win in this world right now, you have to think like a business owner, not like a gym owner. All right? Because the business owners are going to see right now they're salivating.

I'm salivating at the opportunity that's existing. A massive amount of the marketplace is now 100% trying to go into a high profit revenue service model. and they're willing to buy in a way they've never bought before. And you're no longer geographically constrained. It's awesome. And so if you can make your decision like that and just think, I'm willing to give you a dollar today and then make the dollar back in 30 or make the dollar back in 60, you will be able to far outpace everyone else in your marketplace and ultimately grow a much bigger business and have a bigger impact,

as I think most of us wanted to do. But all of that will come down to your ability to make a logical decision instead of an emotional one and looking at how much is it cost to acquire our customer, what's my lifetime value? And right now, we had our first groups of Jim started doing their halfway appointments, and they're closing over 75% of those people into continuity. And so what that means to me is the metrics of the game are the same, except now all of the service on the back end is extremely high margin and requires very little upkeep. All right. So anyways, I get very excited about this.

Hope you're as excited as I am about it. Make decisions like a business owner. Be the one who wins because you make math decisions. instead of feeling decisions. Wait 30 days if you have to to break even. Wait 60 days if you have to break even. Use OPM, use a credit card that you can to acquire the customers and inquire two, three,

five times the volume so that you can actually make the absolute margin that's even bigger in the business. So the one story that I didn't tell you is this. If you're the guy who says I have to break even day one, right, if you were that person. And that's okay, that's fine. And you were limited to 10 new customers a month. All right, that's what you're limited to.

you will have costs that are associated with the business, and some of those costs will be fixed, which means that guide will always make only enough to cover his costs and maybe a little bit more. But if you were willing to wait 30 days or wait 60 days, all of a sudden client business or a 500 or a thousand client business, and now even though your relative return was lower, your absolute return expands by 5x, 10x over that period of time,

and now you're not just making just enough money to get by, but you have all of the extra, the excess that comes because your fixed costs are covered, and the remainder of your costs are variable costs, which means that you always are making the same fixed margin on all the rest of your money. The first $5,000 most of us make every month is not money we get to keep.

That's money we have to pay just to run a business. But the last $10,000 you make on top of whatever it is is typically all profit most of the time, right? And so right now if you have a fixed variable cost that goes up as you scale, the more money you make, the lower the percentage of your total revenue, your fixed cost becomes. If my fixed cost is five, and I make 100 grand,

my fixed cost is 5% of my income. So my margin expands as I make more money. If I'm only making $20,000 a month total, my $5,000 is 25%. So it's five times greater by proportion to my revenue because I was not willing to spend 30 days to recoup my initial investment in acquisition. All right. So anyways, guys, the opportunity right now is enormous.

We can expand far beyond our marketplace. We are no longer limited by the square footage. We're no longer limited by packed class times. Like, we're no longer limited by so many things right now. And the opportunity is, and the thing is, is it's going to vanish. It will. There's going to be tons of people going to flood in the marketplace. There's going to be price competition that's going to start driving the prices down.

But right now, people are willing. willing to spend two three hundred dollars a month to have a one-on-one coach and the business model that accompanies that is significantly a higher margin than it was before so anyways make the smart decision make the business owner decision and win and come out of this way on top you can do it we can help lots of love keeping amazing by the way Geolex has 41% of leads are showing up for sales calls it's like one out of two leads is getting pitched how fucking insane is that I'm super pumped anyways I have so many more data points I'll probably share them with you

next week keeping amazing All right, catch you soon.