15. Back End. The Value Grid. | $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.

• 0:00Alex Hormozi?

  Back end, the value grid. The business owner who makes his customer more valuable to his business than to that of his competition wins. This is my rephrasing of Dan Kennedy's quote, "Hugh can spend the most to acquire a customer wins." Lost chapter, author note. This chapter felt too conceptual. I like it a lot. It's how I actually think about increasing LTV, which is so important for getting customers. But alas, I didn't think people needed to understand it, so I cut it from the $100 million offers book. Winter of 2019. Wait, so you sell twice as many people as I do every month, but you make 56 times more profit than me? Yeah, seems like it. Holy cow. So I just need to focus on making more per customer. I don't need to get more clients at all. Correct.

• 0:42Alex Hormozi?

  This exchange happened on a $50,000 consulting day that I had with someone in my space. They were on pace for $3 million per year in their business. It was profitable and they were making money, but they were having trouble scaling. When they came out to my office, they expected the conversation was going to be about marketing and ads. But after quickly reviewing their numbers, I saw that they were doing fine on that front. The issue was, they just didn't make enough per customer. They had one offer that wasn't irresistible and had no upsell or continuity, so it cost them about 50% more to acquire their customers than it cost me. On top of that, I made 10 times more than they did on the same customer, literally. And how we did it is the process I'm going to share with you right now. LTGP, like I've said earlier, is the arms race of business. The higher you can get that number, the more untouchable you become. The higher that number is, the more damage you can inflict on your competition. You can eventually starve them out of the marketplace.

• 1:27Alex Hormozi?

  This is why becoming a world-class marketer is so important. You can make a product as good as you want, but if you cannot spend your competition, your competition will steal your product and your potential customers. Let me give you an example. If you can pay 10 times more to a car customer than your competition can, you can decide to increase your spending budget such that you compete against yourself until you raise the bar so that no one else can buy ads in your niche. What this means. If you can claim the throne, you can make yourself virtually unbeatable. You can suck up the entire marketplace and make it very difficult for new people to enter. This is similar to a monopoly, except it's legal. It's the opposite of predatory pricing, where people lower their price to force people to operate unprofitably. We're actually taking the opposite strategy of providing more value and raising our prices to make so much money that we can afford to be less efficient.

• 2:10Alex Hormozi?

  As you do this, you continue to increase your market share, increase how much you make, and add more upsells to increase your lifetime value. When someone new comes in, they would either need to have capital to burn, to try to catch up with you, or an entirely new way to monetize the customers to beat you. I'm not going to get into the many, many, many, many, many ways to increase lifetime value. That will be the subject of a future book that I haven't written yet. What I am going to do, however, is simply focus on one of the simplest ways to multiply your lifetime value, AKA stacking offers.

• 2:38Alex Hormozi?

  Many people think of increasing a customer's lifetime value in sequence or stair steps. A customer comes in at the bottom or halfway, then it sends up. I think this is a very good way of getting people to think about their business in terms of how to increase the value you provide. Although it's a useful visual aid, a sequence or stair step fails to take into account a key point. Not all customers follow it. So I think of it more as a grid for two primary reasons. First, with a stair step, the visual depiction makes your brain think that all customers must buy the first in order to buy the second. It depicts the relationship as linear. This has not been my experience. I think the stair step visual model falls short in that regard. All models have limits, but it's a great place to start to get ideas down. Once you have the metrics, the grid becomes an invaluable tool. Here's why. Many times, people buy offer one, then skip to offer four,

• 3:22Alex Hormozi?

  or they skip offers one and two, and then buy offers three and five, or something like that. They don't buy linearly. They buy the ones they want to buy or solve their specific need. The value ladder is based on a fractal concept of customers. At each level, only a small percentage of them will take the offer with the big jump in price. But it doesn't take into account multiple offers at the same price solving different needs. The grid is a different way of depicting the same concept. The second reason I like the grid is that it makes the numbers visual. You can actually visualize all your prospects. And when you add up all the revenue from all the clients in the grid and divide it by the number of people who came in, you know your lifetime value. This makes it a very nice tactical tool for understanding your CAC and 30-day cash value. Both are important and interlinked metrics for acquiring customers. A simple value grid is shown below.

• 4:04Alex Hormozi?

  So since you're listening to this, it's basically a column for trials, a column for conversion to a membership, and then total conversions. And so it has all the people on the left, and then you've got X's and check marks as they kind of go down the process. From this grid, you can see at the bottom that from 10 prospects coming into the business, eight of them take a simple trial offer, and three of them convert on the backend into a paid offer. This means that the business generates a total of $600 from 10 prospects. That means that they can afford $60 per show, and the amount of money they collect per trial in the first 30 days is $75. This makes $75 to 30-day cash. From these numbers, if I had a credit card, I could put $600 on my card to buy ads to get 50 leads and get 10 of them to walk in the door. This would mean that I could break even at $12 a lead. But what I'm not taking into account

• 4:49Alex Hormozi?

  are the very real costs of working the leads and selling them to a trial, which indeed also costs money. Realistically, it would cost me probably between $600 and $1,000 in labor to work all these leads and sell them. I'll use $600 for the sake of the illustration. That would mean that I would now only be able to spend $0 per lead, because all $600 of the revenue generated was eaten up by fixed costs. This is a situation that is all too familiar for small businesses. It costs too much money to get customers. The reality is it never costs too much or too little. It just costs what it costs. It's up to us to design our business in such a way that we make more money from that same customer to be able to not only afford them, but profit from them. Here's how. So let's compare these numbers to the same hypothetical business that has gone through this process of stacking offers, which is what I'm about to show you. So I have a graph,

• 5:34Alex Hormozi?

  and now I show more things that we can sell in that shorter period of time, and people taking different offers based on their needs, and the total adding up to, let's just say, more money. From this grid, we see the business made a different frontend offer. They made a high-ticket offer of some kind with some down sells, then took the person through a series of upsell offers for the first 30 days of their time in the business. Not every person took every offer, but some people did. And those percentages of people add up. All the way to the right, you can see revenue per client, and at the bottom, you can see the totals and averages. Just check out the difference in those numbers between the top example, which is $75, our first example, and the bottom example, which is now $1,763. Both of these grids are for the exact same type of business.

• 6:17Alex Hormozi?

  This is the difference between making a killing and getting killed. This is how you can outspend anyone on any platform. You may be wondering how some of these people who came in and said no to the initial offer still generate revenue. Easy. We offered them a complimentary wellness or lifestyle review just for coming in. At this review, we sold them supplements, even though they didn't want to buy services from us, thereby making money from people who said no. That's an offer I call a free with alternative revenue stream. I break it down in a few chapters from here. Pretty cool stuff, and it actually works.

• 6:46Alex Hormozi?

  The difference in revenue generated between the two examples is about 14 to 15x. This is exactly what was happening with this consulting client in his business compared to my business. In the real world, it means that if your competitor can pay only $100 per lead and you can pay $1,500 per lead and remain just as profitable. Utilizing an upsell framework like this can be one of, if not the greatest competitive advantages of all time. It also gives you enormous margin for error on your marketing and allows you the luxury of not eating the best marketing of all time. With a series of grand slam offers increasing your lifetime value, you can still crush your competition even with mediocre marketing. Having this type of revenue per lead unlocks scale unlike anything you've ever experienced. It is the key for unending growth. So, now that we've covered how amazing of an impact this strategy can have on your business, the question remains, how do we do it?