Podcast Summary: Why Your Education Business Isn’t Sellable | Ep 877

Podcast Information:

• Title: The Game with Alex Hormozi
• Host: Alex Hormozi
• Episode: Why Your Education Business Isn’t Sellable | Ep 877
• Release Date: May 1, 2025

In Episode 877 of The Game with Alex Hormozi, Alex delves deep into the challenges that plague education-based businesses, particularly focusing on why many of them fail to become sellable assets. Through a comprehensive analysis, he distinguishes between education and service businesses, explores effective pricing strategies, and provides actionable insights to transform an education venture into a valuable, sellable entity.

1. The Core Problem: Customer Churn and Sellability

Alex begins by addressing the fundamental issues faced by education businesses: high customer churn rates and difficulties in making the business sellable. He emphasizes that unless an education business offers continued education, churn is an inherent aspect of the model.

“What problem are we solving if people are churning and you have an education business? Well, unless you're doing continued education, that is the nature of the business.” [00:02]

He argues that many education businesses misprice both their upfront offerings and ongoing services, leading to instability and lack of long-term viability.

2. Harvard vs. Typical Education Businesses

To illustrate the stark contrast, Alex compares Harvard to typical education businesses. He highlights three main differentiators:

1. High Standards: Harvard maintains stringent admission criteria, ensuring only a select few gain entry. This exclusivity builds brand prestige.

   “If you accept everybody who has a credit card, that's not a very high standard.” [04:15]

2. No Promises: Unlike many education platforms that guarantee specific outcomes, Harvard sets clear expectations without promising direct results.

   “They don’t say, hey, you're going to make this much money and you're making this many days.” [04:45]

3. Selective Graduation: Not everyone passes, adding another layer of exclusivity and maintaining high standards.

   “Not everyone passes. So not only does not everyone get in and everyone pays with no promise, not everyone passes.” [05:10]

Additionally, Harvard’s in-person model and its robust network of high-caliber individuals add immense value, making the institution a coveted brand.

3. Education vs. Service Businesses: One-Time Value vs. Consumables

Alex delineates the difference between education businesses and service-based models. Education typically offers one-time value—such as courses or certifications—whereas service businesses provide ongoing, consumable value that encourages continuous customer engagement.

“Column A is what's the stuff that someone uses one time gets the value, and then after they get the value, it’s no longer valuable.” [12:30]

He explains that services flourish by offering consumables—products or services that customers repeatedly purchase, ensuring steady revenue streams.

Examples of Consumables:

• Gym Launch: Sells ad templates that can be reused by multiple gym locations, providing continuous value.
• 3D Printing School Community: Offers monthly updates on trending products, keeping members engaged and subscribed.
• Real Estate Business Community: Provides regular lists of properties, ensuring members return for fresh opportunities.

4. Strategic Pricing: Maximizing Upfront and Ongoing Revenue

Effective pricing is crucial for balancing one-time and consumable offerings. Alex advises:

• High Pricing for One-Time Value: Price educational content based on the transformative value it provides.

  “We want to price the one-time value as high as we possibly can relative to what people are willing to pay.” [20:05]

• Appropriate Pricing for Consumables: Ensure ongoing services are priced independently of the upfront cost to avoid churn once the initial value is exhausted.

  “The big mistake is that people will price their consumable at a payment plan price of their one-time upfront value.” [21:30]

He advocates for a "big head long tail" model, where the initial offering is highly priced, and subsequent consumables are affordably priced to maintain long-term customer retention.

5. Building a Sellable Education Business through Brand and Continuity

A sellable education business hinges on creating a strong brand and ensuring continuity through consumable offerings. Alex underscores the importance of building a brand that guarantees future demand, similar to how Harvard operates with its exclusive standards and ongoing educational tiers (bachelor’s, master’s, PhD).

“If you want your business to have value, you're going to have to build a brand around it that guarantees demand in the future.” [28:50]

He also touches on the potential pitfalls of transitioning from an education model to a SaaS model, cautioning against diluting focus and reducing business value.

6. Churn Benchmarks and Customer Retention

Understanding and managing churn is vital. Alex provides benchmarks and strategies to minimize it:

• Average Churn Rate: School communities typically experience an 18% monthly churn rate.

  “18% monthly churn is the average school community churn.” [35:10]

• Retention Goals: Aim for lower churn by ensuring that once customers reach significant milestones (e.g., 12 months), they continue to stay engaged.

  “What I would really care about is M12. So the, the 12 month retention, how many people get to month 12?” [37:25]

He emphasizes the importance of attracting and retaining permanent customers, as the Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio is crucial for business sustainability.

7. Alternative Models: Continued Education and Memberships

Alex highlights continued education as a viable model to ensure business continuity. Professions requiring ongoing certification or updated skills present opportunities for membership-based models that sustain long-term customer engagement.

“That membership business can over time continue to compound and you can demonstrate that people will stay with you for an entire career.” [45:00]

By offering ongoing certifications and updates, businesses can create a steady revenue stream while providing continual value to their customers.

8. Avoiding Common Pitfalls: Focus and Feature Curation

A common mistake in education businesses is overloading the feature stack with numerous services (e.g., calls, accountability groups, resource libraries) without ensuring each feature independently justifies its cost. Alex advises:

“Each feature to be on its own, valuable enough to more than justify three or four times the price.” [52:30]

He suggests simplifying offerings to focus on high-value, consumable services that keep customers returning without overwhelming them with unnecessary features.

9. Final Insights and Advice

Alex concludes by reinforcing that not all education businesses need to be sold to be successful. He shares a story of a friend who built a profitable business over a decade and sold it for $250 million after long-term dedication, illustrating the potential of focusing on sustained growth over immediate sellability.

“How do you want to make money? ... There’s nothing wrong with saying, I have a business that makes me $10 million a year that I'll never be able to sell.” [58:15]

He emphasizes the importance of making committed, strategic decisions rather than relying on half-measures, urging entrepreneurs to either fully commit to making their education business sellable or focus on building a profitable, long-term venture without the need to sell.

Conclusion

In this episode, Alex Hormozi provides a thorough examination of why many education businesses struggle with customer retention and sellability. By distinguishing between one-time educational value and consumable services, implementing strategic pricing, building a robust brand, and managing churn effectively, entrepreneurs can transform their education ventures into sustainable and potentially sellable businesses. Alex's insights serve as a valuable guide for those looking to navigate the complexities of the education sector and achieve long-term success.