← The Game with Alex Hormozi
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We doubled the profit of a five million dollar business in less than eight weeks. And we followed a single specific process that I'll break out in this video. And at the very end of the video, I'll walk you through a hypothetical example of a calves business that would be the best business ever, that taught people how to grow their calves. So you can apply to your business using the same process. So I want you to imagine that you have a business or you'd like to start a business that has a hundred customers that pay $100 a month. So I'm trying to use the simplest math possible. So 100 customers, $100 a month. So that means it's doing $10,000 a month in revenue. Now let's assume that in order to fulfill those customers, we have $8,000 a month in cost. So we're making $2,000 a month in profit, $10,000 top line, $2,000 bottom line, $8,000 of cost. That's the business. Now you rub a magic iPad, a genie appears. And this is not any kind of genie. This is a very a business genie. And this niche genie has one wish that he can grant you. And so he says, I can grant you one wish. He says, I will double your. You need to tell me which way you want me to do door number one or wish grants. Number one is I will double the amount of customers that you bring in every month. With this business, let's assume that your churn is not that good. So people stay for on average three months. Number two, I will double your price so you have the same number of customers and I'll double how much they pay you every single month. Nothing else will change. Door number three, he says, now what I'll do is I'll double how long they stay. So instead of staying for three months, they'll stay for six months. Which of the wishes do you take the genie up on? Really? Be honest in the comments. Tell me what your first guess was going to be, A, B or C. So with door A, he doubles it. So now we have 200 customers a month. What happens? Well, if we have 200 customers paying us a month, we now are making $20,000 in top line revenue. And assuming everything scaled proportionally, we would have $4,000 a month in profit and $16,000 a month in cost. Double the number of customers. We, we doubled the amount of profit, doubled our business. Awesome. Let's go to door 3 because people are staying twice as long, but you're getting the same amount of customers per month. Eventually you will get to the same equilibrium point as the first one. The exception is that that wish accomplished does something more powerful, which is it increases your ltv. Now, because of that and the additional months that they pay you, most businesses, it's more profitable the last month. Someone pays in the first month, usually a cost of acquisition, cost of onboarding. There's more cost associated with getting a new customer than keeping someone. If you can double the lifetime gross profit per customer, then your cost of acquisition can be bigger than it could in the first example. Here. I eventually get to the same top line, but I have more bottom line because I didn't have to spend as much on marketing. So between A and C, you pick C. Now you're like, all right, well, what about door B? So let's say we had the same hundred customers, but now Instead of paying $100 a month, they're paying $200 a month. We still have the same cost of fulfilling them, say thousand dollars. And our profit went from $2,000 a month to now we have literally the extra $100 a month. That's pure profit. So we 6x the profit of the business with one change for those in the audience who are thinking, but not as many people would buy. So I told you that we increased how much profit the business made. I'll tell you, the one change that we did was we looked at the entire marketplace that were selling a similar service to theirs. And it was based on our research, we felt that the market could support a 50% higher price. And so we literally, and this is already a pretty expensive thing, we literally did Nothing but add 50% to the price and changed nothing about the product. And guess what happened? More people bought. Why? Because when something becomes more expensive, people perceive its value in a higher way. And because of the brand that the person had, it was more aligned with the person to have a higher price tag. Now, most times in most markets, you have supply and demand, and when the price goes up, demand goes down in most markets. Now, not all markets, and more times than not, it doesn't drop by the same proportion. So if you double the price, sometimes you sell a third fewer. But if you double the price and you've 6x the profit potential on a customer, if I 6x my profit on a potential customer and I do it at two thirds the price, then I tripled the profit of the business. Still, you still make way more money. And so finding the absolute perfect point of profit many times comes from raising the price. And pricing is one of those very interesting Things because it's very tied to emotions. A lot of people are very afraid of raising the price because they don't want to break it. I want to talk to you about how to raise the price if that is your goal. Which is why the number one lever that you have on profits is pricing and constantly testing. A lot of people split test their pages, they split test their scripts, they split test their offers, but the thing that they forget to test is their price. And it's the strongest lever of all three levers. Okay, so let's walk through a hypothetical business and the steps that we would need to take in order to increase the price, if that's what we decided was the right call. So the first thing we would do is we'd survey the existing audience using the Van west or pricing survey. And let's say this business sold a 12 week grow your calves program. And let's say it was $1,200 for 12 weeks. Very simple. And on the first third of the survey, we're trying to find out more about the customer. So we're like, hey, you know, what was the main reason that you bought this? Was there an event that was coming up that incentivized you to do it? What's your current income level? What's your job? What was the primary way that you found out about us? Right? So it's like, okay, these are the things that we know about the avatar. And so we've got those client demographics. Okay, Second part is the four questions of the Van Wester. What if it were super expensive? What if it were way too cheap? What if it were a stretch? And then what if it were a bargain? Right? Those are the four questions. Now we say of all the things that we do in our CAVS program, which is the book, the training, the nutrition, the stretching thing that we have, the one on one calls for accountability. The buddy system that we've put together. So you have an accountability buddy, like all of these things that we do in our value stack. Which of these, if we only had one of them, you would keep, and which of these, if we got rid of one, you would lose and not care. You take that data, number one. Number two, now we communicate it internally first. All right, so we got to communicate to the team, got to communicate the sales team, security to marketing team. Then we communicate it to our customers. This is what's happening. This is why it's happening. Past, present, future. This is what we did to get here. This is why it's important now. This is what we're trying to do later. We're investing the business because we want to fulfill our promises. Finally, now we bring it up to the new customers who are coming in. So we hit our list up to let them notice we had the urgency in step four. And then the last step is now we officially have this new price. Now, what we want to do now is expect the fact that the change in price will probably result in fewer sales by total volume. And the reason for that is because we cleared the pipeline before the price change. It happens. Once you have that, you have to let it shake out. You have to let it settle. And it's really trying. It's very difficult to do that because it takes guts. But once you make that and you let it settle, then you just do the math and let the math do the talking. But if you sell it at twice the price, you make more money. So. So in our hypothetical CAB scenario, let's say we bumped it to $2,000 or $3,000 because we found out that that was the price that was right at that sweet spot. That was the stretch. But they'd still do it. We might have just 2 or 3x the profit of the business by making that one change. And maybe because cavs are the coolest thing ever, got even more people to buy it because they thought they really could get the results that we said we were going to help them experience.