Rich People Buy Differently (So Price Like It) | Ep 949

Want to scale your business faster? Join our 2-day, interactive workshop: https://www.acquisition.com/workshop-yt-d?el=yt-alex-485w&htrafficsource=youtube Most business owners aren’t “bad at business.” They’re just selling to broke people and then act surprised when the close rate is trash, churn is high, and customers complain nonstop. In this episode of The Game, Alex breaks down the uncomfortable truth: if you want to make money, you have to go where the money is. A small percentage of buyers control a massive percentage of the wealth, which means if you price and position your business for “everyone,” you end up building a business for the people who can’t pay. The goal is simple. Pick a better customer, build a bigger offer, and charge in a way that makes you more money with fewer sales. In this episode 00:00 Why businesses struggle to make money 04:32 Applying the Pareto principle in profits 07:21 Top-down business and pricing strategy 16:10 Sell to the rich - they pay better, complain less 28:47 Picking price points: value over cost 32:50 How close rates reveal underpriced commodities 38:41 Stop selling commodities and raise prices systematically More Value: Discover The Easiest Business I Can Help You Start (Free Trial): https://www.skool.com/hormozi Join The In-Person Scaling Workshop In Las Vegas: https://www.acquisition.com/o-vegas Download your free $100M scaling roadmap here: https://www.acquisition.com/roadmap?el=yt-alex-486r&htrafficsource=youtube Get the $100M Book Bundle: https://shop.acquisition.com/pages/100m-book-bundle Take the $100M Lead Generation Course: https://www.acquisition.com/training/leads?hsLang=en Learn How to Make Offers People Cannot Refuse: https://www.acquisition.com/training/offers?hsLang=en Follow Alex Hormozi’s Socials: ⁠⁠LinkedIn ⁠⁠ | ⁠⁠Instagram⁠⁠ | ⁠⁠Facebook⁠⁠ | ⁠⁠YouTube ⁠⁠ | ⁠⁠Twitter⁠⁠ | ⁠⁠Acquisition ⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Hormozi?

  You aren't making as much money as you want because you don't know how to get it from the people who've got it. My name's Alex from Ozy. I run a portfolio of companies at acquisition.com that earn over $250 million per year. I did a book launch 12 weeks ago that did $106 million in sales in a weekend. It broke a Guinness World Record for the fastest selling nonfiction book of all time. In this video, I'm going to explain a core shift in my understanding of how getting money actually works and why the rich do in fact get richer. And I'm going to show you the math behind it and most importantly, how you can gain access to it. The first reason that you aren't making as much as you want is because you're selling to people who don't have the money to give you. So think about it like this, and this is really important. Imagine this pyramid as a representation of earning in the United States.

• 0:40Alex Hormozi?

  What percentage of the people do you think earn 40% of the income? The top 10% earn 40% of the income in the entire US. Now that's income and that's pretty extreme, but it's not even close to the difference when you look at wealth. So US household net worth, okay, this is the value of their assets. Last year was 163 trillion dollars. And you're like, man, how am I going to pay rent? I'm like, let's get some of that 163 trillion. So this is going to blow your mind. So I want you to imagine that you had a hundred dollars. Okay, so I'm going to equate this 163 trillion is now $100.

• 1:25Alex Hormozi?

  Okay, and we're going to spread it out relative to how it actually is spread within the United States. So this is 100 people to represent 100 percentiles in terms of net worth of the United States. This 163 trillion dollars, what would they have if there was 100 people to represent this hundred dollars? They would have $2.50. I'm just going to use bills because I don't feel like I have any change. So $2 out of that 100, the bottom 50. So the next 40%, what do you think they would have? They're going to have 20, 25, 28 bucks. That's the next 40. Remember, we got a hundred dollars to distribute here. So the next 9%, so now we're getting the top 10, the top decile of net worth, the United States. How much do you think they got?

• 2:10Alex Hormozi?

  They got 20, they got 30, they got 35, they got 38. All right, $38 in just this 9%. Now, you ready for the drum roll?

• 2:26Alex Hormozi?

  How much you think the top 1% has?

• 2:32Alex Hormozi?

  I mean, it's 1/10, right? So like, it can't be more than the other 9, right? I mean, you'd think that. The top 1, just the 1 guy,

• 2:42Alex Hormozi?

  would have $32. 1 guy. Now, this means that this 1 guy has more than the bottom 90% combined. This is very important because it has implications for how you do business. So when you hear me say, "Sell to the rich, they pay better", it's not some pithy statement. It's reality, and it takes people a very long time to learn this. And people often take years before they actually start to figure this out. Usually, there's belief issues. They're like, "No one else could do this." And part of the reason is because everyone they know is poor. And they're like, "There's no way I could sell something for that price." And so they make stuff against all the other small businesses to compete for these $2. Think about that for a second.

• 3:28Alex Hormozi?

  You're putting all the resources because you see all these people. They're the ones that you're brushing shoulders with. They're the ones that you see in the street every single day. And you're trying to compete and slice these $2 100 different ways. Right?

• 3:41Alex Hormozi?

  If you want to make money, go where the money is.

• 3:46Alex Hormozi?

  So let's put this concept on steroids now and actually apply this to doing business. This is how big companies get big. They go where the money's at. And this is a breakdown of something called Pareto's Principle. You might have heard of it, 80/20. It's one of the most powerful concepts in business, and most people still don't understand how to actually apply it. Alright, so I want you to freeze this idea in your head. Just look at the money here. $2 here, $28 here, $38 here. Now, we're in the top 10%, right? And we have another 32 here. So I said earlier that this 1 guy is more than the bottom 90. But 69% of all the wealth is just in these 10 people.

• 4:27Alex Hormozi?

  If this doesn't change how you do business, you are missing the plot. So the idea of 80/20 is that Pareto, who was Italian economist, realized that there was this 20% of customers created 80% of the revenue. And you just notice this 80/20 kind of issue that continued to occur within all different types of data sets. And so that became his principle. Now, here's where this gets really interesting. So within business, it totally rings true. Where 20% of your customers will be responsible for 80% of your profits. And then here's where people miss the next point. Is that within this 80, within this 80%, 64% of the aggregate profit, right? Comes from just 4% of the people in there.

• 5:12Alex Hormozi?

  Four customers, if you had 100. And then of this 64, 51% of the profit comes from just the top 1%. Now, doesn't that all of a sudden start to make sense when you look at how the wealth is distributed? That the wealth is distributed in a way that also makes sense that the business would gain its profits in that way? And so we repeat this process, and this is kind of power law within business. This is how you do less and make more. Profit takes into account the fact that a single person, even with more service, often doesn't cost that much more to handle than the other 99. So it's more work, but significantly more profitable. Now, this is only true under one very important condition.

• 5:57Alex Hormozi?

  That you actually have a business model that allows them to pay more, right? If you just only charge $10 for your thing, like, this is one of my favorite sayings is, "The only thing worse than offering a $1,000 thing to somebody who's got a $100 budget is offering a $100 thing to somebody who's got a $1,000 budget." In the first scenario, you lose 100 bucks. In the second, you lose 900. Big difference. And so here's the important thing. If you have a model that allows for that, you have to understand that 99 out of 100 people are not the top 1%, right? If we're pulling back here, all these people are not the top 1%. So you should expect them to say no to your expensive products and services.

• 6:37Alex Hormozi?

  But when that whale comes, you should want to Captain Ahab that bitch and get it done. Real quick, I'm going to show you the exact 10-stage roadmap from 0 to 100 million plus that less than 1% of companies finish I've now done multiple times. And so I can say with a lot of confidence that these are the stages as headcount increases that you need to get through. And I broke each of these down by eight different functions of the business, what the constraint feels like, like what are the symptoms of it when you're going through it? And then what steps we actually took to graduate? And we've done this across software, physical products, service businesses, brick and mortar, all of this, and it works. And it's my gift to you, it's absolutely free. And so the link's in the description, but you just go acquisition.com/roadmap, just enter info and it'll spit it right back to you all free.

• 7:21Alex Hormozi?

  And so the reason that I talk about selling to these, the top 1%, is that one of the most effective ways to build a business is from the top down. So what do I mean by that? Like, think about like Tesla, right? We started with a $250,000 Roadster and he had a very limited production, very few people, more profitability per. What then happens? Well, then he was able to make the, you know, Model S, and that was the next car. And then he made the Model 3 or Model Y, whatever. So he kept working his way down. But what's interesting about this is that when you anchor high, it makes sense. Think about it from a branding narrative perspective. If I say, hey, I've got this really expensive car, it's amazing, it's super fast. And then I say, hey, guys, many of you couldn't afford this, so I made another car that's similar, but more affordable for you.

• 8:06Alex Hormozi?

  That, that brand narrative works because you anchored high. Now, think about the reverse. Hey, I'm a, I'm a budget discounter and I'm going to now sell a really expensive car. It doesn't, it doesn't hit the same, right? And so I love the top-down approach because you have a brand reinforcer, but also from an operational perspective, Being able to ship the amount of cars he has to ship for the Model 3 compared to the amount that he had to do for the Roadster, it made more sense to start here because you can handle the volume, right? You might not have the operations to handle the amount of work that it requires to serve the masses. Like, for sure, there is money, right? At the bottom, there is. But you have to be doing it at very small razor-thin margins with extraordinary volume. And unless you have the capital to create something that truly

• 8:48Alex Hormozi?

  scales to that mass, you will probably just end up trying to squeeze the $2 for more than what they're worth. And so, how do we actually translate this into pricing our products and services? This is super important. So here's my rule of thumb for upsells, taking to account that 20% of customers have far more spending power than the ones below. Now, remember, we had $2 here, and the next level had 28. So it was 14 times more wealth between just the bottom 50 and the next 40. But just using the Pareto Principle in terms of how we can apply this to pricing, like, you not understanding this is why your business is not making as much profit as you want, alright? So, my rule of thumb is that for

• 9:27Alex Hormozi?

  every new tier, is that you want to 5 to 10x your price and expect 20% of people to take it, okay? So here's how it works. So let's say that you sell 10 customers. Okay, so you sell 10 customers. Let's do it again, okay? Now, if you have eight of these customers at $10 per month, and you've got two of them at $50 per month, how much am I making on these guys? I'm making $80 per month in total on the bottom 80, and then I'm making $100 per month on my top 20%, or my top 2. And so by serving these two customers differently,

• 10:08Alex Hormozi?

  we doubled the revenue of the business, which by the way, again, is my rule of thumb. I want each tier... To bring me another double, like another full amount of revenue. Otherwise, I'm like, I don't know if it's worth creating the actual extra constraint of operations. Right. But here's where it gets even nastier. Let's say that this covers the majority of our overhead. That means that this extra hundred dollars might contribute 10 to one compared to this to our bottom line. And so sometimes when you make a move like this, if you were here and you had eighty dollars and you were living your life on this eighty. Right. It's like, well, maybe your, your, your cost is seven or you're taking 10 home. If you add this hundred dollars in, and maybe the cost on this is 20, you've got 80 left over.

• 10:50Alex Hormozi?

  We five X the profit. So let's say our profit before this was 10 a month. And then we added this in, we had eighty dollars a month in profit from this hundred. Right. Look at the difference in profit. We go from 10 to 90. Just by adding this tier. And so the reason your business is not making this money and you're not making as much money as you want. Is because you're not priced appropriately for the people who actually have the money to give you. And so this is what everyone messes up. They say, hey, this is going to be my three pricing tiers. Right. I'm going to have a hundred dollar a month thing. And I'm gonna have a hundred and twenty nine dollar a month thing. And I'm going to have a hundred and, you know, thirty nine dollar a month thing. Okay, great.

• 11:36Alex Hormozi?

  This is all the same price. It's a lot for a normie and just not a lot for everyone in the top 10%. And so to maximize revenue, you can think of it with four tiers of pricing. And to be clear, you don't need to serve everyone and the first product you have may not be your base tier. All right. So you might start here. I don't know yet. I don't know your business. But this is what you can walk through in terms of thinking through the pricing for your products and services. So let's assume that we have a thousand customers. All right. So on our, on our, our base tier, all right, so this is the lowest. Ten dollars per month, and let's say we've got 800 customers at this level. Okay. Now, our second tier, we might have it a hundred dollars per month. So 10 times that price with 20% taking it.

• 12:21Alex Hormozi?

  All right. So that means we're going to get somewhere in the neighborhood of 200 ish people who would qualify for this tier. Okay. And the next year, we still have to follow our rule, five to 10 X. So that means we're going to be at 500 to 1,000 a month for this next year. Just to keep it simple, I'm gonna just do 10 X because it's nice and clean. All right. And so here, we're gonna have maybe. Around 40. Now you're like, wait, I have to wait a thousand customers. This would be 160. I'll redo the math again so you can see it. All right, now our next tier might be, again, five to 10 times this. And so we might be somewhere in this, five to $10,000 a month. All right, and so if you're looking at this, you're like, holy cow. That's, uh, those are very big differences in price.

• 13:03Alex Hormozi?

  Yes, but they reflect how different the spending power that exists within customers is. All right, and so the main takeaway from this is that if you're gonna have an upsell, a very small percentage of people are gonna take it. And so you have to make it worth it. And so people will have these, I'll go 100 and 129. It's like, it's the same pitch, it's the same price. The willingness to pay for that customer is the same. Let me show you how I've actually translated this into my own business. All right, well, this, and you can ignore the actual numbers of customers, but what do we have here? Ah, we have school. And then at $100 a month, what else do we have? We have school. This is our hobby plan. This is our pro plan.

• 13:44Alex Hormozi?

  And so for me, the next number is $5,000, which is L1. And what's the next number after that? $35,000. Huh, almost like it's between five to 10 times the price, which is L2. And then what do we have after that? We have something that's $135,000. So that's four times the price, right? And this is L3. And what do I have underneath of that? No money, because it's a portfolio company.

• 14:11Alex Hormozi?

  And so the thing is, is it may take some time to build out this entire thing. I didn't start with school. I started building, you know, uh, you know, our brand. Uh, this is, to be clear, just our advisory practice, um, that we have at acquisition.com. And so I'm just saying, like, knowing this doesn't mean you need to do all of this at once. It takes years and it does take operational chops to pull this off, right? You want to add tiers one at a time. My tip, though, is to start as high up as you can on this ladder for a few reasons. Right, so the Tesla example I gave earlier, the branding from top down versus bottom up is much stronger. Like Honda making a better car is tough versus Rolls Royce making a Rolls Royce light. It would be easier play for them from brand position. The next reason is that I prefer to start with the unscathed.

• 14:52Alex Hormozi?

  Why? Because it's easier to operationalize it serving these people because one, they actually, believe it or not, as a percentage of net worth, this is actually lower than what this is for somebody who's poor. Right? If you have uh ten million dollars, a hundred grand is one percent of what you've got. If you've got a thousand dollars, a hundred bucks is ten percent of what you got. And so for you, you will actually be more demanding for that ten, that ten percent or that hundred dollars reasonably so, than somebody who's giving one percent. But from a business perspective, the hundred bucks versus the hundred grand, it's a gigantic difference. So you have an easier customer to deal with that has lower demandingness, but it requires, and to be clear, to get that hundred dollars to equal a hundred thousand, you've got to get a thousand of those people.

• 15:37Alex Hormozi?

  So is serving the one customer for a hundred thousand easier than serving a thousand at a hundred? As somebody who used to sell a hundred dollar gym memberships? For sure. And if we were to look at this from a profit contribution perspective, like what is actually dropping to the bottom line? It would look like this. All the profit is here, just like all the wealth is at the top.

• 15:59Alex Hormozi?

  So you have to do more and charge more for it to people who can afford it. And the amount you do for a few people is almost always worth it for the far greater price for those people who are willing to pay it. Now, you might ask, well, wait a second. I thought you said sell the rich. Like, why do you have this ten dollar, this hundred dollar a month thing? The only way to serve the poor masses, right? And I say this to be a little bit more like, you know, jarring. But to serve people with lower budgets is to have tons of money and then find a way to serve them in an automated manner, at a low price. And if you do that, you can also make a lot of money, but via volume. But it takes a lot of money. It takes a lot of time. And the reason that Tesla has almost gone bankrupt multiple times is because it's incredibly hard.

• 16:41Alex Hormozi?

  The reason most software companies like Netflix and Spotify and some of these big consumer, you know, companies, you know, who, who charge thirteen dollars to give you hun- think about how hard that is. Think about how hard that businesses. They have to make world-class entertainment for all the different genres that someone might like, just to earn their thirteen dollars. Right? Just to earn the equivalent of like a Chipotle bowl. And again, I bring this up because some people come in saying, "Oh, I'm gonna do that." It's like, "You're gonna do that bootstrapped?" No, these companies that you're looking to model literally got artificially inflated with outside capital to prop the business up until it would get to the point where it actually could make money. So to do something like this costs a fortune.

• 17:23Alex Hormozi?

  And so the way that I'm trying to walk you through this is that 80% of businesses in the US, or 78, are service-based businesses. And so you don't have an automated way to serve these masses. You likely don't. And so if you don't have an automated way, then you want to go in the complete other direction, which is, "I want to serve the best customer at the highest possible price." But people misprice their products and services. They say, "Okay, my current core thing is $1,000. I'll make the next thing $1,500." It doesn't work that way. That's not how the buyer works. The buyer is at 5K, 10K from the 1K thing. That's the next tier. That's the next rung on the ladder. All right? And so this hopefully should shift your perspective in terms of how pricing really works. A disproportionate amount of profit is here.

• 18:05Alex Hormozi?

  We have to make gigantic jumps with the assumption that very small percentages are gonna take it, but still be okay with it because even a small number of people at a gigantic price is still a lot of money. So how do you actually translate this and put this into practice? Number one, stop selling from your own wallet. Especially if you're one of the people who, you know, you're in that $2 category, right? You're that bottom 50% right now. I get it. I've been there. You have to forever imagine, this is a gift, forever imagine that everyone is rich. So here's the reality that will shock you. That top 10%, top 10% of Americans have a million-dollar-plus net worth. One in 10 people. One in 10 people. Million-dollar net worth. They've got the money. You just aren't selling them something that they want.

• 18:49Alex Hormozi?

  And you might even be, and this happens a lot, especially for newer business owners, you might even be too cheap for them to even believe that you're good. Like, we had a company that was in the health space a while back. And looking at all the research, it was a doctor and all the stuff. And I just fundamentally believed that they were mispriced. And so what I did was I raised, I wanted to raise the price by double. You fought me back and forth forever. And I was able to finally get a 50% price raise through. But guess what happened? We raised the price by 50%. That's a lot. What do you think it did to the close rates? They went up. They were so cheap compared to the promise and what they were delivering, that people didn't even believe that it worked. And so some of you guys are so cheap because you're selling out of your own wallet.

• 19:34Alex Hormozi?

  You're selling based on what your friends and family, who might also be in that $2 bottom 50% are telling you. But why would you listen to the people who don't have money on how to get money? They don't know where it is. They don't know how to get it. And more specifically, they don't know how to serve the people who've got it. So that's the first thing. The second thing is that if you're gonna do this, listen to me on this. Whatever your upsell is, 5 to 10x the price. And then just make sure it's something that you'd be happy to deliver for, 5 to 10 times the price. Sometimes I'll get pushback from people who are like, "Oh, that would be so much work." And I'm like, "Cool, we have value and we have price. Move one of them. Either do less or charge more." I would encourage you to just charge more, right?

• 20:19Alex Hormozi?

  And so if I were to say, "Hey, I want you to 10x the current price of your upsell." What would you do that would absolutely blow people away? How much does that actually cost you? When you look at the cost compared to that 10x bigger price with a zero on the end of whatever your core offer is, you might find it's like, actually, it's only like, you know, 5% of that price. It's like, right, really high margin. So as long as you're happy making more money, serving fewer people, go do that. The third one is that you should expect only 1 in 5 or 1 in 10 people to say yes. Expect more no's. And this is the sweet spot of making money, right? The sweet spot isn't the most yeses. It's the most money. And that is never with the most yeses.

• 21:01Alex Hormozi?

  So if you pitch your 10x bigger price to this bottom 50%, none of them are gonna say yes. And you're gonna mistake Believe that this is a bad idea. But the reality is that you're just not talking to the people who have the money. And so you should expect that if you have representative amount of people that you speak with, one in 10, maybe even one in 100 is the is the person who is the correct avatar. And for that person, you might also find they'll just say like, yeah, that sounds good. And you'll be like, oh, my God. And I only say this to somebody who's had it happen for the first time. I can't even believe this is possible. I can't believe this person would give me this much money. It's because to them, it's not that much money. It's only that much money to you because you still live here.

• 21:39Alex Hormozi?

  If you sell to rich people long enough, they will make you one of them.

• 21:44Alex Hormozi?

  And so with your upsell, make it crazy. And this is called an anchor for a reason, right? If no one buys it, no big deal. Or most don't, no big deal. But the good news is that it'll still help you sell the rest of everyone else at a higher percentage and even at a higher rate because it'll look like a good deal in comparison.

• 22:04Alex Hormozi?

  And I said this before, but I'll say this again. The next reason is the only thing worse than selling a $1,000 thing to a $100 buyer is selling a $100 thing to a $1,000 buyer. In the first, you lose 100 bucks. In the second, you lose 900. And not only that, that 900 is probably disproportionately profit. And this is what no one understands. This is why most businesses don't make money. They just try and sell to these people who are the biggest pain in the butt. And the thing is, is you see so many of them that you're like, oh, this must be how it works. No, it's not how it works. It's just how you're working. This is how the average business works, which is why the average business doesn't make money. They don't go to where the money is at. The next reason is you have to think about absolute profit rather than relative profit and you'll be blown away.

• 22:46Alex Hormozi?

  So a single person paying $10,000 for something that costs $2,000. A single person, right? One, right? Buying a $10,000 thing that costs $2,000 is the same.

• 23:04Alex Hormozi?

  As 400 people buying a $50 thing that costs $25, these are the same. So do not underestimate the power of large prices in small quantities. And so the reason that entrepreneurship is such almost like a spiritual journey is that you you earn the right to charge more because you no longer think the smaller amount of money is worth your time. The reason that rich people get richer is less because there's some magic behind anything. But there's only two real forces, in my opinion, that make the rich get richer. The first is math, which is that compounding is a thing. When you have a billion dollars, next year it's 1.1 billion if you do nothing. $100 million is made because the assets went up.

• 23:47Alex Hormozi?

  Very difficult to outwork compounding over a longer period of time. That's a reality. And as that capital aggregates, which it does in capitalism, which is a system for allocating capital, that's the point of capitalism, is that it will always shift to the people who are the best at allocating it. And so in time, if everybody starts at even on enough generations, eventually the capital pools. It's how all capitalism has worked out since the dawn of time. And so that's what creates this great divide. The second thing, which you can do something about, which is why I'm making videos like this, is that there are beliefs that people who have money have, which translate to behaviors that poor people don't have and translate to different behaviors. So what does that mean?

• 24:30Alex Hormozi?

  A rich kid will choose not to pursue a lower leverage opportunity because it's not worth their time because they were taught it wasn't worth their time. The career paths that they'll have to choose from will be significantly skewed towards things where they'll get disproportionate returns. And a lot of that is just knowledge about it, not even knowledge how to do it. I remember when I first found out, I'd never heard of management consulting. I'd never heard of private equity. I'd never heard of investment banking. I'd never heard of any of this stuff when I went to college because where I was from in Baltimore, a rich person was a doctor. That was a rich person. And so, and to be fair, my dad's a doctor. So I felt, I was like, okay, cool. When I went to Vanderbilt, I felt like one of the poorest people there because I'd never seen what needed...

• 25:13Alex Hormozi?

  York money was. I'd never seen what California money was. I'd seen what Baltimore rich was, which is that you have, you know, my dad has a business with two secretaries and, you know, we always had food. I never had to worry about it. I still have the immigrant mentality of like, we don't use, you know, paper towels because they're expensive, but like that's just because he came here with a thousand bucks and I, that still got transmitted. In some ways, you have to hit above your weight class, right? And the story of when I actually made my first high ticket sale in my life was when I, I actually set a number that I wanted the person to say no to. And then they said yes. That was how that actually, that belief was broken for me. So as much as I want to say like, this is what you have to do. I'm this guy, you know, guy on YouTube that you just saw or whatever, like Leila and I were selling, we, we started doing these gym

• 25:56Alex Hormozi?

  launches. We would sell memberships through gyms. We would collect the money and that was the model. We'd fly around the country. That's what we did. There were some issues with that model, which I've talked about in other videos. And so then all of a sudden Leila started selling weight loss directly, made a little brand for her called Queen Transformation. We started selling these $500 online training packages over the phone and that started working. And so I had these gyms that I was supposed to do these launches at, that I had decided I wasn't going to do them anymore. And so I had eight gyms I was supposed to call up and like basically cancel on them. And so on the first phone call, the guy was actually a referral and he was like, dude, you saved my, my friend's gym. Like I know you can do this. And I was so beat down at this point. I was like, dude, I'm not, like, I'm not doing it. And he kept asking for it. And then finally I was like, all right, dude, like I'll show you what I do, but I'm not flying out there

• 26:40Alex Hormozi?

  to help you if you can't close. And mind you, I come from the done for you world of like, I literally did everything. I fronted the money. I fronted the cash. I built, you know, I'd literally buy the tables. I'd print the contracts out. I'd run the ads. We'd work the leads and we'd sell them straight in the gym. So I did everything. So me saying that was just a hope that he would just like say screw off. And he was like, no, I get it. I get it. And he was like, well, how much? And so I said, and remember, I'm used to selling $500 16 week training packages where you have to show up like every, you know, three times a week to do stuff. I said $6,000. So for me, it was a 12x compared to the price that I was used to sell now. And I just said it. So I was like, he's just going to say nope. And then I can just hang up and just move on to my next

• 27:16Alex Hormozi?

  call. And he said 6K and I was like, yeah, $6,000. And he was like, done. And I, I remember like floating out of my body in this moment being like, holy shit. Six grand from one call.

• 27:37Alex Hormozi?

  And I didn't even have the thing. I didn't even have the thing that I had sold him yet. Cause I just didn't think he was gonna say yes. I didn't think to have to build it, right? And so I was like, holy shit. And so then the next, so I had seven more calls. I called the next guy, same conversation. Well, I was like, now I gotta build this thing. But it went really smooth and I was like, uh, he's like, how much? I was like, eight grand. And he was like, yeah, done. And I was like, eight grand? I was like, I'm up fourteen thousand dollars in a, I'm not even in a day. It's in a morning. So then I had six more calls and by the end of the, you know, the next call, same thing. How much? Ten K. Next call. And by the end of the day, I'd done sixty thousand dollars in, in collected. And I was like, what the fuck just happened? I had no idea what was going on.

• 28:21Alex Hormozi?

  Uh, and so Leila came back after she was selling the five hundred dollar memberships. And I was like, babe, I was like, I just made sixty grand. And she was like, what? She was like, I, she was like, I thought we were doing the weight loss thing. I was like, no, I think we're still doing the gym thing. I think we were just doing it wrong. And this is why I'm telling you this. Cause like that moment of all the moments in my entire career, that was the moment where I elevated. That was the moment where my life really changed. And so I bring this up because you might be like, well, what, at what price point should I start? Right? It's gonna be relative whether you're selling to consumers, you're selling to businesses. And uh, this is just a couple of rules of thumb that I'll just tell you that I've kind of worked around. I'd say that for a consumer, an impulse purchase is five or six hundred dollars.

• 29:03Alex Hormozi?

  A higher ticket purchase is usually gonna be somewhere between three and ten thousand dollars. All right? Typically, and that's again for services. If you're looking at like assets, the different game. You're buying houses and cars, the different game, right? But if you're selling just like pure, I'm gonna help you do some stuff. Uh, I'm gonna help fix some stuff. That's usually a price point that's quote higher ticket. Business, it really depends on the size of business. If you're selling to Disney, you can sell a billion dollar thing, right? If you're selling to just small business owners. On Main Street, remember, some of them are poor too, right? And so for them though, a more normal price for something will probably be somewhere in the neighborhood of like, I'd say like a mid-tier is probably, you know, $2,000 to $3,000 a month. A cheaper price for a business owner would be somewhere in the neighborhood of like 400 to 800 a month. Call it closer to 500 bucks a month as like a cheaper number for a business.

• 29:47Alex Hormozi?

  And you're like, $500 a month is cheap for a business? Like, yeah, super expensive for a consumer, pretty cheap for a business. And so if you're like, well, where do I start? Well, if you're currently not making money, at a zero, and then think, what would I deliver for that? That's a great place to start. All right, and the thing is, is I know that part of you is fighting this. Like in your head, you're like, there's no fucking way anyone's gonna buy that. No, there's no way the 50 poorest people you know could buy it. But for sure, the people above that line can. And part of the reason that you'd never close 100% of prospects is because you're gonna talk to some of these people. And the price point that you have to get an 80% close rate on, for example, is a price point that this person can spend five to 10 times more than the, than the bottom 50. That is why the tiered pricing is so important.

• 30:31Alex Hormozi?

  Is that, and then you might find that you might just not wanna sell to the bottom 50% until you have enough capital to actually build infrastructure so you can do it in an automated fashion. One of the big issues I would say that poor people think about compared to rich people is that poor people will think in terms of cost, and I would say rich people will think in terms of the ratio, the return, cost versus value. So if I were to say, hey, I've got this thing that's, let's say it's, let's say it's $20,000. A poor person, just hearing the price, would say, that's expensive. But if I said, a rich person, if I said, hey, my thing is $20,000, they wouldn't then say, that's expensive, they'd say, for what?

• 31:12Alex Hormozi?

  And if I said, share, a Class A share of Berkshire Hathaway, which is an $800,000 stock, for $20,000, that would be the deal of the century, right? If I said it was $20,000 for a brand new Lamborghini, they would say, that's a great deal. So even though it costs a lot of money, it's great value. And this is what I did, I struggled for such a long time to understand because it was like, I almost had this emotional reaction to zeros. It's like, if I saw zeros, I was like, oh my God, it's so much, right? And so I know where you're coming from because you almost want to you almost choke on the price. So I'll give you a couple of little tactics for this to like get around it. So one is if you're in person, you can write down the price and then turn it and slide it to them. Or you can use a calculator and turn it to them if you like literally choke on the price because some people do do that.

• 31:58Alex Hormozi?

  The second thing that you can do, and this is a really good little little pricing hack for for selling, is before you say the price, you say, hey, for us to say the price, it's super expensive. And so what's beautiful about telling someone it's expensive before you tell them the price is that if someone's rich, they're going to immediately think what's expensive for them. And so they're going to think a number and then you're going to say the number and they're going to they're going to literally be like, oh, fine. If they're poor and you say it's expensive, they're going to brace themselves for a number that's big. And then when you give them that number, they were at least braced for it. And so in either way, you actually create what I would consider an emotional anchor that's perfectly accommodating to the buying power of the prospect. And most salespeople get choked up right at that point. So it's like, give yourself a breather.

• 32:42Alex Hormozi?

  It's going to be expensive. You take a breath, they take a breath, then you deliver. Right? So just a little tactic that works and also can help increase sales. So a good way to know if you're actually underpriced is to actually look at your close rates. All right. And so if your close rates are 80% or let's say 60 to 80, I'll put this in tiers for you. 50 to 60, 40 to 50, and then 30 to 40, and then 30. Okay. So let's say these are your close rates. So that means if you talk to 10 people, here you close eight, right? If you're closing 80%, you probably right now have it a two to three X in pricing. Sorry, a three to four X in pricing, excuse me.

• 33:25Alex Hormozi?

  A three to four X in pricing just sitting there. I know that sounds absurd, but think about it. You're going to get the 80% are not going to say yes anymore. I want to be very clear. You might drop to like 35%, but if 35% of people are paying four times more, you're making 120% of the revenue that you were making before. All right. And so like you're making way more money.

• 33:47Alex Hormozi?

  Now, at sixty to eighty, you probably have a two to three X that you have sitting there in price. If you're between fifty and sixty, you probably have a one point five X to two X sitting there. If you're at forty to fifty percent, you're probably at one point two five to one point five X. All right, if you're here, I consider this to be appropriately priced. If you're closing thirty to forty percent, you're priced about right. If you're below thirty, I would say get better at selling. Which part of getting better at selling could be make the offer better? Or talk to better customers. All right, and so sometimes you will try and pitch a high ticket thing, but not have your core offer, which might be lower, so you have an anchor offer. But the people that you're speaking with, you didn't qualify them. So if I want to say, hey, I'm talking to million dollar plus business owners,

• 34:30Alex Hormozi?

  I will have a significantly higher close rate if I'm only talking to them. And so most times, you will dramatically change the feeling of your life. If you just say, we only deal with customers above this. Remember all that money that was sitting on the table? So if you're looking at figuring out who you want to serve, look at these people. Where do you think you draw your line? If you say, I would like to make money. Do you want to talk to these people all day? Do you want to talk to these people all day? Or do you want to talk to these people all day? If you want to make money, go where the money is.

• 35:07Alex Hormozi?

  And these people speak differently than these people. And so part of what many of y'all's marketing is, and your price point, actually tell these people, this isn't for us. So as somebody who is one of these people,

• 35:26Alex Hormozi?

  now, so I feel like I'm like calling back and telling you what it's like on the other side, right? Is that if I see somebody who sells B to B services, and they sell something that's fifteen hundred dollars a month, I know it's not for me. I don't need, I don't need to know anything else. Because I know they're not advanced enough as a business to know how to cater to a company of my size. They just can't handle it. And so I have to deal with an entrepreneur who's got a twenty thousand dollar a month, fifty thousand dollar a month, you know, subscription for whatever their, their services are. Because I would believe that they could actually deliver. If you've got sixty nine dollars here, twenty eight here, and two here. And think about the amount of conversations you got to have here. You got to have ten conversations to have access to sixty nine dollars. Or you have to have ninety conversations to have access to twenty eight plus two, thirty bucks.

• 36:13Alex Hormozi?

  Which would you rather have? Your price will signal to rich people that this is for them. And your marketing, if you're running flash sales and discounts and all of that kind of stuff, you're telling these people who have money, "This isn't for you. I'm inexperienced. I'm a low-level business owner." Or, "I'm a business that purposely, I might be a higher-level business owner, but I purely made this to cater to the masses." So, all of what I described is something called lead scoring or lead qualification. And so what that means is that there's a certain type of customer that's more likely to buy your thing, right? Somebody who has more money is more likely to buy your more expensive thing. And so if we know that the people who have the money are the ones that buy our expensive

• 36:55Alex Hormozi?

  thing, then we should try and just tell the world, "We only cater to these people." So what'll happen is, your marketing, the volume will go down. The cost per call, the cost per lead will go down. But the amount you make will go way up. And so, let me give you a real-life scenario. When we optimized for leads for my book launch, we paid about five bucks a lead when we optimized just for leads, which is volume, alright? And we had another campaign that optimized for purchases. And those leads cost $17. The question is, which one would you go with? Now, the poor business owner would say, "Well, $5 leads are better than $17 leads."

• 37:37Alex Hormozi?

  The rich business owner would say, "Well, what kind of leads do I get?" And so these $5 leads, after we finished the campaign, were worth $20. Okay, for extra turn, there's something there. The $17 leads were worth $189. I don't know about you, I'd rather spend 17 to make 189 than 5 to make 20. And so one of the things that will change when you start serving the upper class, if you will, is that your cost per unit will go up. Your cost to deliver, your cost per sale will go up, but not proportional to the amount of money you will make. So I had to pay three and a half times more for something that was worth...

• 38:19Alex Hormozi?

  Six and a half times the, is it six? No, that's nine. Nine and a half times. So I had to pay three and a half times as much for something that was worth nine and a half times the value. Which one's the better deal? This is an 11x. This is a 4x. This is what the lesser affluent do not understand. And this is why their businesses do not make more money. Now, the next thing that will come up is people will say, hey, I would sell for a really expensive thing, but no one will buy it. Because there's guys down the street who will sell it for less because they're brokeys selling to brokeys. You're right. And that's because you can't sell the same thing. You gotta sell something different. Which is why I wrote my first book on this, which is the first chapter is you're selling a commodity.

• 39:03Alex Hormozi?

  You're selling something that someone could reasonably hold your thing and their thing up and say, these two things are the same. So I'll chip, pick the cheaper one. And that's reasonable for them to do it. The idea is that we want to price our things so high and be in such a clearly different category that people say, these two things must be different. I have to analyze these independently. And so within the context of what do I get for my money? The rich person wants three things. They want it to be fast. They want it to be easy. They want it to be guaranteed. And so everything that you do that is more difficult for these people, you have to make easier and these people will be willing to pay for it. And so you pre-do some of that work for them. You pre-chew some of the food. You go ahead of time. You drive ahead. You scout the location. You drive it to the door, whatever it is.

• 39:46Alex Hormozi?

  But when you look at, well, what does it cost for me to drive this thing to the door? It costs me 10 bucks, but they're willing to pay 100 for it. Whereas this person's nagging me on the last five bucks. It's a different game, but this is where all the money's at. And as you get further and further in business, you'll find out that it might be 40-year-old moms with at least two kids. You know, that live in these neighborhoods or these zip codes. That's the ones that are the best customers for your B2C, you know, thing. It might be if you're in home services, we only deal with homes, homes over a million dollar value, which you can check. You know, their address and pull it up on, on Zillow or any other website before you even talk to the leads. You know what kind of house value you're getting into. Like having those options available will show you in your CRM or whatever way you track data that some customers spend more. Then you want to take all that time and effort.

• 40:29Alex Hormozi?

  And look at those customers and say, what makes these people different from everyone else? And then that becomes your front end marketing. And also talking to those customers and saying, hey, what about my thing attracted you to my service or my product? They will tell you the things that these people value, which will be different than what these people value. And these people almost exclusively value price, as in, they want the cheapest thing. They don't even want to hear because the same reason. They're traumatized by zeros, right? And so you can't judge whether you're priced appropriately by people who can never pay to be able to. So in past videos, I've also talked about how like, when you start, you should start for free. I have a Chick-fil-A approach to pricing. It's like, it's either free or it's full price, right? Now, I want to keep doing free

• 41:14Alex Hormozi?

  until I feel 1,000% confident that I can deliver, and then I go full price. Now, within my Leads book, which by the way, you can grab all three of the books for free, hardback. I think five or six bucks each, just cover the shipping. You get all three, it's a special we have right now. If it runs out, apologies, because the last time I did it, it ran in a couple of weeks. I break down how to go from zero to hero in terms of pricing, inside of this book. Now, part of that is me having to do with the psychology of people who are beginners, right? And so my preference is to have kind of an algorithmic approach to somebody who, like, I'm telling you this so that you can just jump the line. If you just cannot wrap your head around it, start for free, and then whatever your price was going to be, charge 20% of that, right? And you're like, great. And then do that for the next five customers.

• 41:58Alex Hormozi?

  And then after that, bump it by 20%, and then bump it by 20%, and then bump it by 20%, five and 20, five and 20, five and 20, until eventually you're closing one out of three people. When you're at one out of three people, you're priced appropriately. And at that point, what do we do? We want to keep raising price over time. Because the reality of how services work is that you can tell how advanced a service business owner is by how expensive their product is. Because if you're actually good, you have more demand than you have supply. If you have more demand than you have supply, what should you do? Raise price. That's how the supply-demand curve works. And so you continue to raise your price until you're at a point where you're at equilibrium, where you can handle the amount of demand that you have. If you're still good, you still get more demand because word of mouth continues, and you keep going up. And that becomes the virtuous cycle of price and services.

• 42:43Alex Hormozi?

  Because when you have a higher price, you have higher gross margins. When you have higher gross margins, you can hire better talent. When you've had better talent, you can deliver better services. When you have better services, you get better reputation. When you have better reputation, what does that do? It drives demand. Which then drives price. And so this is the cycle that every business has to go through. And you signal to the marketplace, you communicate to the marketplace. Pricing is a two-way communication. You tell them what you're about and then they will self-select as the correct customers for you.

• 43:10Alex Hormozi?

  And so you can see where someone's at in their business journey by how high they are priced compared to people who sell comparable services. Because people will very much take price as an indication of value.

• 43:22Alex Hormozi?

  They just do. Because in general, things that are priced higher are better. Not always, but often. It's a good enough rule of thumb that people in general will do that. Like, this might blow your mind if you've like not met people with money. When they go to shop on a store, they price from high to low.

• 43:39Alex Hormozi?

  They literally look at the most expensive stuff first. Because that's probably the stuff that's for them. They don't want to save money anymore. They want to get better value. They want better stuff. They want to skip the line. They want to get it faster. They want it better. They want it to be a higher quality, you know, higher quality ingredients. They want it to be more made by somebody who's more noteworthy. All of these things. And fundamentally, that is what this book goes into tremendous detail talking about, which is the Offers Book. All right. So with that being said, sell to the rich. They pay better. It's better to sell fewer expensive customers than many pro customers. And if you sell to rich people for long enough, they will make you one of them.