22. Continuity Offer. Lifetime Discounts. | $100M Lost Chapters Audiobook

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 and will learn on his path from $100M to $1B in net worth. Wanna scale your business? Click here. 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.

• 0:01Alex Hormozi?

  Continuity offer, lifetime discounts. Get them to stick.

• 0:05Alex Hormozi?

  Lost chapter author note. This chapter delineates lifetime versus one-time discounts. It was an earlier version of $100 million money models, but I cut it since I think a lot of people would cut their prices too much and ultimately damage their business. So don't do that. Summer 2015. My phone rang. Catching a glimpse of the ID, I saw, quote, "The Opener." I had tried for weeks to get a hold of this guy. I didn't know much about him, but a business friend of mine said if I wanted to take launching gyms seriously, I should talk to the best, and the Opener was the best. When big chains open a new store, they send their A-team, their best marketers, the best operators, their best product people, and so on. This ensures that when the store opens up, it makes an amazing first impression in that market, right up my alley. And when the business establishes itself, the A-players hire their replacements.

• 0:50Alex Hormozi?

  Then they rinse and repeat. The Opener opened gyms for a billion-dollar gym franchise, so I couldn't wait to learn from him. We spoke for almost an hour. I learned a lot from him, and this golden nugget topped it off. "We open every location with 400-plus recurring members, or we don't open," he said. "You can't be serious," I replied. "No, man, for real. We crush grand openings." "Well, what do you do?" "We advertise a 14-day trial into a lifetime discount on their membership, but we only offer the lifetime discounts to members who sign up before we open. We call it the founding member discount. And since the discount lasts for life, and there's a short time to get it, a lot of people want it, so we open up packed." "Whoa." "How on earth do you stay profitable with lifetime discounts?" "We know our numbers. After the 14-day trial, 80% stay.

• 1:34Alex Hormozi?

  So if we get 500 trials, 400 bill on day 15. We turn a profit in month one. Better yet, most of them stick because they don't want to lose their lifetime discount, so they become lifetime customers." It made too much sense. Not only was this a strong attraction offer, but it also got people to stick for the long term. He'd just given me a billion-dollar secret. Description. Lifetime discount offers.

• 1:57Alex Hormozi?

  Lifetime discount offers, at least the way I use them, give customers a cheaper price as long as they stay on recurring payments. Customers get incentivized to take the offer now because they get value at a discount now. And the way I use lifetime discounts, customers also stick because if they leave, they can't get it back. To make lifetime discounts even more attractive, add urgency, like limited time, scarcity, like a limited number, and believable reasons for both. For example, a grand opening. If you add those components, the lifetime discounts work like magic. Just offer to discount somebody's monthly rate so long as they pay it. Make it more attractive by limiting the number of buyers or the amount of time they buy it. There you have it. To learn more about urgency and scarcity, refer to the urgency and scarcity chapters in $100 million offers.

• 2:40Alex Hormozi?

  A lifetime discount only works if you actually charge more when this offer ends. Otherwise, you just list the price and pretend it's a discount, which is gross. The opener used lifetime discounts as an attraction offer. I prefer to use them as upsells. I let people keep a rollover upsell discount only if they finish out the credited payments. This gets them to buy and gets them to stick. They give it like price protection, where you keep it so long as you keep paying for it. Final point: When giving lifetime discounts or any discount, make sure you make a profit after the discount. Examples of lifetime discounts. Recurring local service. Retail price: $400 a month. Offer: 50% off retail for life. New discounted price: $200 a month. Reason: New location.

• 3:25Alex Hormozi?

  Urgency: Until we open. Scarcity: Classes fill up. Digital product development. Early access. Retail: $39 a month. Offer: $20 off retail for life. Discount price: $19 a month. Reason: It will have bugs. Urgency: Until we launch it. Scarcity: I only want to take on X number of people to get feedback. Recurring physical product, new supplement flavor tester pricing. Retail $19.99, offer $14.99 for life, discount price $14.99 for a month. Reason: We want your feedback, urgency, X date, scarcity, until we run out of this batch. Alternate. Recurring physical product, new supplement flavor tester pricing.

• 4:10Alex Hormozi?

  Retail $19.99 a month, offer $5 off per month for life after you stay for five months. Discount: $14.99 a month. Reason: We want to reward your loyalty and commitment. Urgency none, scarcity none. Important notes. Lifetime discounts come with a big fat warning. Know your numbers. Lifetime discounts work pretty good. So, if you don't know your numbers, you can get into some serious trouble. This offer gives customers a locked-in discount so long as they pay. So remember, the cost of getting customers and the cost of delivering will change. If those costs get higher than your profit, they have locked in a rate and you will have problems. Three ways to display your lifetime discount. You can offer a percentage off retail, like 50% off, a dollar off amount retail, like $20 off,

• 4:54Alex Hormozi?

  or a fixed price, like price protection. The first two are far more flexible. If things change, they always do, you can adjust your retail price and lifetime discount customers still keep their discount. So if you decide to offer a fixed price for life, know your numbers. Limit price protection for fixed periods. I also try to give myself flexibility. Giving one price forever limits me. To reconcile that, I offer price protection for a period of time rather than forever. Example: Normally $50 a month, but you can pay $20 a month for the next 36 months. Never waste a crisis. Lifetime discounts are almost too good to be true, so you need an equally strong reason to make them believable. The best ones are real and true life events. Just as much as you can give a discount because something good happened, you can give a discount because something bad happened.

• 5:38Alex Hormozi?

  Here are a few of my favorite reasons why. We have a surprise cost: a leak, a tax bill, legal, negative life event, etc. My birthday, anniversary, holiday, founder's discount, damaged goods, beta testers, spoil our local community, new program, new flavors, new sizes, new formula. You're only limited by your creativity and the bad or good things that happen to you. If you say you will offer this discount once and never again, stay true to it. To keep flexibility, you can always change what is included in your offer so that you can still sell at this quote rate again. Just don't sell the same thing you made available for one time only, twice. To be clear, businesses test price points all the time. You just want to make sure that you do not offer two prices to two different people at the same time for the same thing.

• 6:22Alex Hormozi?

  You can offer a lifetime discount on one thing so long as they buy another at retail. If you have two more services that are complementary, consider giving one at a steep forever founder's discount and make up the profit on the other. Fancy business people call this a loss leader. For example, you can give an insane founder deal on meal planning to attract boatloads of new customers, provided they pay retail for meal prep services. In other words, you can use insane founders discounts to attract leads and then make your profits on the upsell. This often works better than two mid-priced offers or generic 25% off the top of both. If a customer wants to leave the program, remind them that they'll lose the discount. This will save some customers from leaving. If a customer wants to return after canceling from a lifetime discount, first, don't give it back to them, or you'll lose credibility with everyone else.

• 7:07Alex Hormozi?

  Second, offer them a down sale that meets the same price but has fewer features. I've found this works best for people who are price sensitive. The bigger the head, the longer the tail. Bonus: The upsell comes built in. As soon as they like the product, make the original offer again. If they pay the difference of their down payment, they can lock in the lower monthly payments. You can offer to lock this rate in for life. If you put down X, will you permanently buy down your monthly rate to X and keep it for life? This gets more cash and a stickier customer. When I was being mentored by John, the Tanning King Empire, he used to say, "I just want $1 from everyone in the world." He had built a massive, low-priced, monthly, recurring tanning salon in Southern California. He taught me a lot about this traditional revenue business. I'm grateful for the wisdom he would share over the long car rides.

• 7:52Alex Hormozi?

  One of the biggest lessons I learned came when he came to explain how initiation fees worked. I didn't even know a thing about them. So he would say, "Guess which membership has the longest stick rate?" John would ask, to lay the context for his explanation of initiation fees. Uh, the cheaper one? I guessed, waiting to hear his answer. "The one they pay the most upfront for," he replied, grinning sheepishly. "I didn't understand." He still didn't get it and continued. "If I get someone to pay $100 to sign up and lower their rate from $18 to $10, I'm never losing that person. They'll even call me before their card changes to make sure they get that lower rate." So they basically buy a lower rate, but by doing that, they extend how long they stay by a ton. The more you can get people to commit upfront, the longer they'll stick.

• 8:37Alex Hormozi?

  Being a little slow in the uptake, the thought that the bigger the head, the longer the tail came to mind, and I wrote a note in my phone for later so I wouldn't forget. That's when I learned the power of initiation fees for continuity. Another way to spin the same concept is to waive a hefty initiation fee if they commit to a longer duration of time. An example would be saying, "You have two options. You can either pay $100 a day, then go in a month-to-month at $10 a month, cancel one if you like, or you start today for $10 to commit to the year. If you commit to the year, I'll waive the $100 initiation fee." They may seem to fly in the face of the above point because you think everyone would just take the lower fee and save the $100. But wait. If they, for some reason, try and then cancel before the duration of their contract, you say, "Absolutely, no problem. All we have to do is switch you over to the month-to-month plan, just cover the initiation

• 9:22Alex Hormozi?

  fee of $100 that we waived, and we'll get you switched right over." So by having this bigger, quote, "head," you get a longer stick on the back, as many will choose to just finish out their contract rather than pay the steep fee. The reason getting people to pay more upfront gets them to stay longer is a psychological phenomenon called the sunk cost fallacy. Basically, people disproportionately continue to invest in a choice in which they already invested time or money, even if it no longer makes sense. You hear it in statements like, "We've already come this far. We've already put in so much time, we might as well just finish." This psychological principle is dangerous. If you don't recognize it in yourself, you will expose yourself to form a risk than you otherwise should, and you will stick with things longer than you would otherwise, simply because you already have. This goes for partnerships, memberships, investments...

• 10:07Alex Hormozi?

  Gambling and so much more. So getting more upfront capitalizes on the psychological bias. But initiation fees don't just work on one bias, they work on multiple. Let me give you a different example. The greater the upfront payments compared to the scheduled payments, the more likely the customer will complete them. If I get paid a thousand dollars today and then have five months to pay a hundred dollars, I'll likely collect the next five payments. On the other hand, if I ask for a hundred dollars a month for five months and a thousand dollars at the end, the likely that the last payment will go through is lower. We account for this risk by adding to the upfront payment, creating a paid in full discount, or increasing the risk of ending their discount and reminding them of the cash they'll forfeit, the upfront payment, and the price they'll lose, it'll be more expensive if you come back.

• 10:51Alex Hormozi?

  We want to remind them of these things as close to the purchase or cancel as possible. Summary points. Know your numbers, preserve your margins, deliver a killer product. If you do this, then lifetime discounts customers will flock to your door and scale your business at a profit. Lifetime discounts lead to a stickier customer because they lose the discount if they stop. Lifescom discount offers make a product or service cheaper for a customer as long as they stay on recurring payments. Add urgency and scarcity to make lifetime discount offers or any offers more compelling. Use life events, both negative and positive, as reasons to offer a lifetime discount. If you offer a lifetime discount, then you have a higher retail price. You can offer lifetime discounts in three ways: a percentage off retail, a dollar amount off retail, or you just say the actual price and it's stuck at that price.

• 11:34Alex Hormozi?

  Make sure you have a healthy lifetime gross profit per customer after the discount. This offer builds word of mouth because insane deals and great products get around fast.