If you’re ambitious but broke, watch this

AAlex Hormozi
창업/스타트업도서/문학마케팅/광고경영/리더십

Transcript

00:00:00You 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.
00:00:04My name is Alex Ramozzi. I run a portfolio of companies at acquisition.com that donate over 250 million dollars per year.
00:00:10I did a book launch 12 weeks ago
00:00:11that did 106 million dollars in sales in a weekend and broke a Guinness World Record for the fastest selling non-fiction book of all time.
00:00:16In this video, I'm going to explain a core shift in my understanding of how
00:00:19getting money actually works and why the rich do in fact get richer.
00:00:24And I'm going to show you the math behind it and most importantly, how you can gain access to it.
00:00:28The 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.
00:00:33So think about it like this and this is really important. Imagine this pyramid as a representation of earning in the United States.
00:00:40What percentage of the people do you think earn 40% of the income?
00:00:44The top 10% earn 40% of the income in the entire US. Now that's income and that's pretty extreme.
00:00:54But it's not even close to the difference when you look at
00:00:57wealth.
00:00:58So
00:00:59US household net worth. Okay, this is the value of their assets.
00:01:03Last year was one hundred
00:01:07and sixty
00:01:10three
00:01:11trillion dollars. And you're like man, how am I gonna pay rent? I'm like, let's get some of that 163 trillion.
00:01:17So this is going to blow your mind.
00:01:19So I want you to imagine that you had a hundred dollars.
00:01:22Okay, so I'm going to equate this 163 trillion is now one hundred dollars. Okay, and we're going to spread it out.
00:01:27Relative to how it actually is spread within the United States.
00:01:32So this is a hundred people to represent a hundred percentiles in terms of net worth the United States.
00:01:37This 163 trillion dollars, what would they have if there was a hundred people to represent this hundred dollars?
00:01:43They would have two dollars and fifty cents. I'm just going to use bills because I don't feel like I haven't changed.
00:01:48So two dollars out of that hundred.
00:01:50The bottom fifty. So the next forty percent, what do you think they would have? They're going to have twenty
00:01:57twenty-five,
00:01:59twenty-eight bucks.
00:02:01That's the next forty. Remember, we got a hundred dollars to distribute here.
00:02:04So the next nine percent. So now we're getting the top ten, the top decile of net worth the United States.
00:02:09How much do you think they got? They got twenty.
00:02:12They got thirty.
00:02:15They got thirty-five.
00:02:16That's thirty-eight. All right, thirty-eight dollars
00:02:19in just this nine percent.
00:02:22Now,
00:02:24you ready for the the drum roll?
00:02:27How much do you think the top one percent has?
00:02:29I mean it's one tenth, right? So like it can't be more than the other nine, right? I mean you'd think that.
00:02:39The top one, just the one guy
00:02:43would have thirty
00:02:47two dollars.
00:02:49One guy. Now this means
00:02:51that this one guy
00:02:54has more
00:02:56than the bottom ninety percent combined.
00:02:58This is very important because it has implications for how you do business.
00:03:03So when you hear me say sell to the rich they pay better, it's not some pithy statement.
00:03:09It's reality and it takes people a very long time to learn this and people
00:03:12often take years before they actually start to figure this out. Usually there's belief issues.
00:03:16They're like no one else could do this and part of the reason is because everyone they know is poor
00:03:20and they're like there's no way I could sell something for that price and so they make stuff
00:03:25against all the other small businesses to compete for these two dollars.
00:03:28Think about that for a second. You're putting all the resources because you see all these people.
00:03:33They're the ones that you're brushing shoulders with. They're the ones that you see in the street every single day
00:03:36and you're trying to compete and slice these two dollars a hundred different ways.
00:03:40Right?
00:03:43If you want to make money go where the money is.
00:03:47So let's put this concept on steroids now and actually apply this to doing business.
00:03:54This is how big companies get big. They go where the money's at
00:03:57and this is a breakdown of something called Pareto's principle. You might have heard of it 80/20.
00:04:02It's one of the most powerful concepts in business and most people still don't understand how to actually apply it.
00:04:06All right. So I want you to freeze this idea in your head. Just look at the money here. Two dollars here.
00:04:1028 bucks here. 38 here. Now we're in the top 10% right? And we have another
00:04:1532 here. So I said earlier that this one guy is more than the bottom 90.
00:04:21But 69% of all the wealth is just in these 10 people.
00:04:26If this doesn't change how you do business
00:04:32you are missing
00:04:34the plot. So the idea of 80/20 is that Pareto, who was Italian economist, realized that there was this, you know,
00:04:4020% of customers created 80% of the revenue.
00:04:42And you just notice this 80/20, you know, kind of issue that continued to occur within all different types of data sets.
00:04:49And so that became his principle. Now, here's where this gets really interesting.
00:04:52So within business, it totally remains true, where 20% of your customers
00:04:57will be responsible for 80% of your profits. And then here's where people miss the next point. Is that within this 80,
00:05:05within this 80%
00:05:0864% of the aggregate profit, right, comes from just 4%
00:05:17of the, there you go, I'll just do that, of the people in there. 4 customers if you had 100. And then of this 64
00:05:2551% of the profit comes from just the top 1%.
00:05:34Now doesn't that all of a sudden start to make sense when you look at how the wealth is distributed?
00:05:40That the wealth is distributed in a way that also makes sense that the business would get in its profits in that way.
00:05:47And so we repeat this process and this is kind of power law within business. This is how you do less and make more.
00:05:54Profit 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.
00:06:02So it's more work, but significantly more profitable. Now, this is only true under one very important condition
00:06:09that you actually have a business model that allows them to pay more.
00:06:13Right, if you just only charge ten dollars for your thing,
00:06:17like this is one of my favorite sayings is the only thing worse than offering a thousand dollar thing to somebody who's got a hundred dollar budget
00:06:25is offering a hundred dollar thing to somebody who's got a thousand dollar budget.
00:06:28In the first scenario, you lose 100 bucks. In the second, you lose 900.
00:06:32Big difference.
00:06:35And so here's the important thing.
00:06:36If you have a model that allows for that, you have to understand that 99 out of 100 people are not the top 1%.
00:06:41Right, if we're pulling back here,
00:06:44all these people are not the top 1%. So you should expect them to say no to your expensive products and services.
00:06:51But when that will comes,
00:06:53you should want to Captain Ahab that bitch and get it done.
00:06:56Real quick, I'm going to show you the exact 10 stage roadmap from zero to 100 million plus
00:07:02that less than 1% of companies finish, I've now done multiple times.
00:07:05And so I can say with a lot of confidence that these are the stages, as headcount increases, that you need to get through.
00:07:11And I broke each of these down by eight different functions of the business, what the constraint feels like,
00:07:16like what are the symptoms of it when you're going through it, and then what steps we actually took to graduate.
00:07:20And we've done this across software, physical products, service businesses, brick and mortar, all of this.
00:07:26And it works. And it's my gift to you. It's absolutely free. And so the link's in the description.
00:07:30But you just go acquisition.com/roadmap, just enter your info and it'll spit it right back to you, all free.
00:07:35And so the reason that I talk about
00:07:37selling to these the top 1% is that
00:07:42one of the most effective ways to build a business is from the top down.
00:07:46So what do I mean by that? Like think about like Tesla, right?
00:07:49We started with a $250,000 roadster and he had a very limited production. Very few people, more profitability per.
00:07:55What then happens? Well, then he was able to make the, you know, Model S and that was the next car.
00:08:00And then he made the Model 3 or Model Y, whatever. So he kept working his way down.
00:08:05But what's interesting about this is that when you anchor high,
00:08:08it makes sense. Think about it from a branding narrative perspective. If I say, "Hey, I've got this really expensive car.
00:08:13It's amazing. It's super fast." And then I say, "Hey guys, many of you couldn't afford this.
00:08:16So I made another car that's similar but more affordable for you."
00:08:19That brand narrative works because you anchored high. Now think about the reverse.
00:08:24"Hey, I'm a budget discounter and I'm going to now sell a really expensive car."
00:08:28It doesn't hit the same, right?
00:08:31And so I love the top-down approach because you have a brand reinforcer, but also from an operational perspective,
00:08:39being able to ship the amount of cars he has to ship for the the Model 3 compared to the amount that he had to
00:08:42do for the Roadster, it made more sense to start here because you can handle the volume, right?
00:08:46You might not have the operations to handle the amount of work that it requires to serve the masses. Like for sure,
00:08:51there is money, right? At the bottom, there is. But you have to be doing it at very small, razor-thin margins with
00:08:57extraordinary volume. And unless you have the capital to create something that truly scales to that mass,
00:09:03you will probably just end up trying to squeeze the two dollars for more than what they're worth.
00:09:08And so how do we actually translate this into pricing our products and services? This is super important.
00:09:14So here's my rule of thumb for upsells, taking into account that
00:09:1920% of customers
00:09:21have far more spending power than the ones below. Now remember, we had two dollars here and the next level had 28.
00:09:26So it's 14 times more wealth between just the bottom 50 and the next 40.
00:09:31But just using the Pareto principle in terms of how we can apply this to pricing,
00:09:35like you not understanding this is why your business is not making as much profit as you want.
00:09:39All right. So my rule of thumb is that for every new tier
00:09:42is that
00:09:44you want to 5 to 10x your price
00:09:46and expect 20% of people to take it. Okay?
00:09:52So here's how it works. So let's say that you sell 10 customers. Okay, so you tell 10 customers to do. Let's do it again.
00:10:05Okay.
00:10:07Okay, now if you have eight of these customers at $10 per month
00:10:14and you've got two of them at $50 per month,
00:10:20how much am I making on these guys? I'm making $80 per month in total
00:10:26on the bottom $80. And then I'm making $100 per month
00:10:31on my top 20% or my top two. And so by serving these two customers differently,
00:10:37we doubled the revenue of the business, which by the way again is my rule of thumb. I want each tier
00:10:43to 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?
00:10:52But here's where it gets even nastier.
00:10:55Let's say that this covers the majority of our overhead.
00:10:58That means that this extra $100 might contribute 10 to 1
00:11:02compared to this to our bottom line.
00:11:04And so sometimes when you make a move like this, if you were here and you had $80 and you were living your life on this $80,
00:11:10right? It's like well, maybe your cost is $70 or you're taking $10 home.
00:11:14If you add this $100 in and maybe the cost on this is $20, you've got $80 left over, we 5x the profit.
00:11:21So let's say our profit before this was $10 a month.
00:11:25And then we add this in and we get $80 a month in profit from this $100, right?
00:11:29Look at the difference in profit. We go from $10
00:11:33to $90
00:11:36just by adding this tier.
00:11:39And so the reason your business is not making this money and you're not making as much money as you want
00:11:43is because you're not priced appropriately for the people who actually have the money to give you.
00:11:48And so this is what everyone messes up. They say, hey, this is going to be my three pricing tiers, right?
00:11:53I'm going to have a $100 a month thing and I'm going to have a $129 a month thing and I'm going to have a
00:12:00$139 a month thing.
00:12:03Okay, great.
00:12:06This is all the same price.
00:12:08It's a lot for a normie and just not a lot for everyone in the top 10%.
00:12:12And so to maximize revenue, you can think of it with four tiers of pricing. And to be clear,
00:12:18you don't need to serve everyone and the first product you have may not be your base tier.
00:12:22All right, so you might start here. I don't know yet. I don't know your business.
00:12:25But this is what you can walk through in terms of thinking through the pricing for your products and services.
00:12:31So let's assume that we have a thousand customers, all right?
00:12:33So on our base tier, all right, so this is the lowest.
00:12:38$10 per month and let's say we've got 800 customers at this level, okay?
00:12:43Now our second tier, we might have it $100 per month. So 10 times that price with 20% taking it, all right?
00:12:50So that means we're going to get somewhere in the neighborhood of 200-ish people who would qualify for this tier, okay?
00:12:57And the next year,
00:12:59we still have to follow our rule, 5 to 10x.
00:13:01So that means we're going to be at 500 to 1,000 a month for this next year. Just to keep it simple,
00:13:05I'm going to just do 10x because it's
00:13:07nice and clean, all right? And so here we're going to have maybe
00:13:11around 40. Now you're like, wait, I thought we had 1,000 customers. This would be 160.
00:13:15I'll redo the math again so you can see it, all right? Now our next tier might be, again,
00:13:215 to 10 times this and so we might be somewhere in this $5,000 to $10,000 a month, all right? And so
00:13:26times around 8 people, okay?
00:13:33And so if you're looking at this, you're like, holy cow, those are very big differences in price.
00:13:39Yes, but so they reflect how different the spending power that exists within customers is, all right?
00:13:46And so the main takeaway from this is that if you're going to have an upsell,
00:13:51a very small percentage of people are going to take it. And so you have to make it worth it.
00:13:54And so people will have these, I'll go 100 and 129. It's like it's the same pitch. It's the same
00:13:59price. The willingness to pay for that customer is the same. Let me show you how I've actually
00:14:04translated this into my own business, all right? Well, this, and you can ignore the actual numbers
00:14:10of customers, but what do we have here? Ah, we have school. And then at $100 a month, what else do we
00:14:17have? We have school. This is our hobby plan. This is our pro plan. And so for me, the next number
00:14:23is $5,000, which is L1. And what's the next number after that? $35,000. Huh, almost like it's between
00:14:36five to 10 times the price, which is L2. And then what do we have after that? We have something that's
00:14:42$135,000. So that's four times the price, right? And this is L3. And what do I have underneath of
00:14:49that? No money because it's a portfolio company. And so the thing is, is it may take some time to
00:14:56build out this entire thing. I didn't start with school. I started building our brand. This is,
00:15:02to be clear, just our advisory practice that we have at acquisition.com. And so I'm just saying,
00:15:08knowing this doesn't mean you need to do all of this at once. It takes years, and it does take
00:15:12operational chops to pull this off, right? You want to add tiers one at a time. My tip, though,
00:15:16is to start as high up as you can on this ladder for a few reasons, right? So the Tesla example
00:15:22I gave earlier, the branding from top down versus bottom up is much stronger. Like Honda making a
00:15:26better car is tough versus Rolls Royce making a Rolls Royce light. It would be easier play
00:15:31for them from brand position. The next reason is that I prefer to start with the unscalable.
00:15:35Why? Because it's easier to operationalize it serving these people because one, they actually,
00:15:40believe it or not, as a percentage of net worth, this is actually lower than what this is for
00:15:44somebody who's poor, right? If you have $10 million, $100 grand is 1% of what you've got.
00:15:52If you've got $1,000, $100 is 10% of what you got. And so for you, you will actually be more demanding
00:16:01for that 10% or that $100 reasonably so than somebody who's giving 1%. But from a business
00:16:07perspective, the 100 bucks versus the 100 grand, it's a gigantic difference. So you have an easier
00:16:12customer to deal with that has lower demandingness, but it requires, and to be clear, to get that $100
00:16:17to equal 100,000 is you've got to get 1,000 of those people. So is serving the one customer for
00:16:22100,000 easier than serving 1,000 at 100 as somebody who used to sell $100 gym memberships? For sure.
00:16:28And if we were to look at this from a profit contribution perspective, like what is actually
00:16:32dropping to the bottom line, it would look like this. All the profit is here, just like all the
00:16:41wealth is at the top. So you have to do more and charge more for it to people who can afford it.
00:16:49And the amount you do for a few people is almost always worth it for the far greater price for those
00:16:54people who are willing to pay it. Now you might ask, well, wait a second. I thought you said sell the
00:16:58rich. Like why do you have this $10, this $100 a month thing? The only way to serve the poor masses,
00:17:04right? And I say this to be a little bit more like, you know, jarring, but to serve people with lower
00:17:10budgets is to have tons of money and then find a way to serve them in an automated manner at a low
00:17:16price. And if you do that, you can also make a lot of money, but via volume. But it takes a lot of
00:17:22money. It takes a lot of time. And the reason that Tesla has almost gone bankrupt multiple times is
00:17:26because it's incredibly hard. The reason most software companies like Netflix and Spotify,
00:17:31and some of these big consumer companies who charge $13 to give you, think about how hard that is.
00:17:38Think about how hard that business is. They have to make world-class entertainment for all the
00:17:43different genres that someone might like just to earn their $13, right? Just to earn the equivalent
00:17:49of like a Chipotle bowl. And again, I bring this up because some people come in and say, oh, I'm
00:17:55going to do that. It's like, you're going to do that bootstrapped? No, these companies that you're
00:17:58looking to model literally got artificially inflated with outside capital to prop the
00:18:04business up until it would get to the point where it actually could make money. So, to do something
00:18:08like this costs a fortune. And so, the way that I'm trying to walk you through this is that 80% of
00:18:13businesses in the US, or 78, are service-based businesses. And so, you don't have an automated
00:18:19way to serve these masses. You likely don't. And so, if you don't have an automated way,
00:18:23then you want to go in the complete other direction, which is I want to serve the best
00:18:26customer at the highest possible price, but people misprice their products and services. They say,
00:18:31okay, my current core thing is $1,000. I'll make the next thing $1,500. It doesn't work that way.
00:18:36That's not how the buyer works. The buyer is at $5,000, $10,000 from the $1,000 thing. That's the
00:18:42next tier. That's the next rung on the ladder, all right? And so, this hopefully should shift your
00:18:47perspective in terms of how pricing really works. A disproportionate amount of profit is here. We have
00:18:52to make gigantic jumps with the assumption that very small percentages are going to take it,
00:18:56but still be okay with it because even a small number of people at a gigantic price is still a
00:19:01lot of money. So, how do you actually translate this and put this into practice? Number one,
00:19:06stop selling from your own wallet, especially if you're one of the people who you're in that $2
00:19:11category, right? You're that bottom 50% right now. I get it. I've been there. You have to forever
00:19:16imagine, this is a gift, forever imagine that everyone is rich. So, here's the reality that
00:19:21will shock you. That top 10%, top 10% of Americans have a million dollar plus net worth, one in 10
00:19:27people, one in 10 people, million dollar net worth. They've got the money. You just aren't
00:19:33selling them something that they want. And you might even be, and this happens a lot,
00:19:37especially for newer business owners, you might even be too cheap for them to even believe that
00:19:41you're good. We had a company that was in the health space a while back and looking at all
00:19:47the research. It was a doctor and all the stuff. And I just fundamentally believed that they were
00:19:53mispriced. And so, what I did was I wanted to raise the price by double. You fought me back and forth
00:19:59forever. And I was able to finally get a 50% price race through. But guess what happened? We raised
00:20:04the price by 50%. That's a lot. What do you think it did to the close rates? They went up. They were
00:20:11so cheap compared to the promise and what they were delivering that people didn't even believe
00:20:16that it worked. And so, some of you guys are so cheap because you're selling out of your own
00:20:20wallet. You're selling based on what your friends and family who might also be in that $2 bottom 50%
00:20:26are telling you. But why would you listen to the people who don't have money on how to get money?
00:20:31They don't know where it is. They don't know how to get it. And more specifically, they don't know
00:20:35how to serve the people who've got it. So, that's the first thing. The second thing is that if you're
00:20:41gonna do this, listen to me on this. Whatever your upsell is, 5 to 10x the price. And then just make
00:20:49sure it's something that you'd be happy to deliver for 5 to 10 times the price. Sometimes I'll get
00:20:53pushback from people who are like, "Oh, that would be so much work." And I'm like, "Cool. We have value
00:20:59and we have price." Move one of them. Either do less or charge more. I would encourage you to just
00:21:04charge more. Right? And so, if I were to say, "Hey, I want you to 10 times the current price of your
00:21:09upsell," what would you do that would absolutely blow people away? How much does that actually cost
00:21:15you? When you look at the cost compared to that 10 times bigger price with a zero on the end of whatever
00:21:19your core offer is, you might find it's like, "Actually, it's only like, you know, 5% of that price."
00:21:24It's like, "Right. Really high margin." So, as long as you're happy making more money, serving fewer people,
00:21:32go do that. The third one is that you should expect only 1 in 5 or 1 in 10 people to say yes.
00:21:37Expect more no's. And this is the sweet spot of making money. Right? The sweet spot isn't the most
00:21:44yeses. It's the most money. And that is never with the most yeses. So, if you pitch your 10 times bigger
00:21:51price to this bottom 50%, none of them are going to say yes. And you're going to mistakenly believe that
00:21:56this is a bad idea. But the reality is that you're just not talking to the people who have the money.
00:22:01And so, you should expect that if you have a representative amount of people that you speak with,
00:22:051 in 10, maybe even 1 in 100, is the person who is the correct avatar. And for that person,
00:22:11you might also find they'll just say like, "Yeah, that sounds good." You'll be like, "Oh my God."
00:22:14And I only say this to somebody who's had it happen for the first time. I'm like, "I can't even believe
00:22:17this is possible. I can't believe this person would give me this much money." It's because to them,
00:22:20it's not that much money. It's only that much money to you because you still live here.
00:22:24If you sell to rich people long enough, they will make you one of them.
00:22:31And so, with your upsell, make it crazy. And this is called an anchor for a reason. If no one buys
00:22:37it, no big deal. Or most don't, no big deal. But the good news is that it'll still help you sell
00:22:42the rest of everyone else at a higher percentage and even at a higher rate because it'll look like
00:22:47a good deal in comparison. And I said this before, but I'll say this again. The next reason is the
00:22:55only thing worse than selling a $1,000 thing to a $100 buyer is selling a $100 thing to a $1,000
00:23:00buyer. In the first, you lose $100. In the second, you lose $900. And not only that, that $900 is
00:23:05probably disproportionately profit. And this is what no one understands. This is why most
00:23:10businesses don't make money. They just try and sell to these people who are the biggest pain in the
00:23:14butt. And the thing is, is you see so many of them that you're like, "Oh, this must be how it works."
00:23:18No, it's not how it works. It's just how you're working. This is how the average business works,
00:23:22which why the average business doesn't make money. They don't go to where the money's at.
00:23:27The next reason is you have to think about absolute profit rather than relative profit,
00:23:31and you'll be blown away. So a single person paying $10,000 for something that costs $2,000,
00:23:38a single person, right? One, right? Buying a $10,000 thing that costs $2,000 is the same
00:23:51as 400 people buying a $50 thing that costs $25. These are the same.
00:24:02So do not underestimate the power of large prices in small quantities. And so the reason that
00:24:10entrepreneurship is such almost like a spiritual journey is that you earn the right to charge more
00:24:15because you no longer think the smaller amount of money is worth your time. The reason that rich
00:24:20people get richer is less because there's some magic behind anything, but there's only two real
00:24:25forces in my opinion that make the rich get richer. The first is math, which is that compounding is a
00:24:30thing. When you have a billion dollars, next year it's 1.1 billion if you do nothing. A hundred
00:24:35million dollars is made because the assets went up. Very difficult to outwork compounding over a longer
00:24:40period of time. That's a reality. And as that capital aggregates, which it does in capitalism,
00:24:46which is a system for allocating capital, that's the point of capitalism, is that it will always
00:24:50shift to the people who are the best at allocating it. And so in time, if everybody starts at EVID
00:24:55on enough generations, eventually the capital pools. It's how all capitalism has worked out
00:25:00since the dawn of time. And so that's what creates this great divide. The second thing,
00:25:06which you can do something about, which is why I'm making videos like this, is that there are beliefs
00:25:10that people who have money have, which translate to behaviors, that poor people don't have and
00:25:16translate to different behaviors. So what does that mean? A rich kid will choose not to pursue
00:25:24a lower leverage opportunity because it's not worth their time, because they were taught it wasn't
00:25:29worth their time. The career paths that they'll have to choose from will be significantly skewed
00:25:34towards things where they'll get disproportionate returns. And a lot of that is just knowledge about
00:25:39it, not even knowledge how to do it. I remember when I first found out I'd never heard of management
00:25:43consulting. I'd never heard of private equity. I'd never heard of investment banking. I'd never heard
00:25:47of any of this stuff when I went to college because where I was from in Baltimore, a rich person was a
00:25:52doctor. That was a rich person. And so, and to be fair, my dad's a doctor. So I felt, I was like,
00:25:58okay, cool. When I went to Vanderbilt, I felt like one of the poorest people there because I'd never
00:26:04seen what New York money was. I'd never seen what California money was. I'd seen what Baltimore rich
00:26:09was, which is that you have, you know, my dad has a business with two secretaries and, you know,
00:26:12we always had food. I never had to worry about it. I still have the immigrant mentality of like,
00:26:16we don't use, you know, paper towels because they're expensive. But like, that's just because
00:26:20he came here with a thousand bucks that I, that still got transmitted. In some ways you almost
00:26:25have to, you almost have to bat above, you have to hit above your weight class, right? Which is,
00:26:30even though it sounds un, like, and the story of when I actually made my first high ticket sale in
00:26:36my life was when I actually said a number that I wanted the person to say no to. And then they said
00:26:42yes. That was how that actually, that belief was broken for me. So as much as I want to say, like,
00:26:46this is what you have to do. I'm this guy, you know, guy on YouTube that you just saw or whatever,
00:26:50like Layla and I were selling, we started doing these gym launches. We would sell memberships
00:26:56through gyms. We would collect the money. And that was the model. We'd fly around the country.
00:27:00That's what we did. There were some issues with that model, which I've talked about in other
00:27:03videos. And so then all of a sudden Layla started selling weight loss directly, made a little brand
00:27:08for her called Queen Transformation. We started selling these $500 online training packages
00:27:12over the phone and that started working. And so I had these gyms that I was supposed to do these
00:27:17launches at that I had decided I wasn't going to do them anymore. And so I had eight gyms I was
00:27:21supposed to call up and like basically cancel on them. And so on the first phone call, the guy was
00:27:26actually a referral and he was like, dude, you saved my, my friend's gym. Like, I know you can do this.
00:27:29And I, I was so beat down at this point. I was like, dude, I'm not, like, I'm not doing it. And
00:27:34he kept asking for it. And then finally I was like, all right, dude, like I'll show you what I do. But
00:27:39I'm not flying out there to help you if you can't close. And mind you, I come from the done for you
00:27:43world of like, I literally did everything. I fronted the money. I fronted the cash. I built, you know,
00:27:47I literally buy the tables. I print the contracts out. I'd run the ads. We'd work the leads and we'd
00:27:51sell them straight in the gym. So I did everything. So me saying that was just a hope that he would
00:27:54just like say, screw off. And he was like, no, I get it. I get it. And he was like, well, how much?
00:27:58And so I said, remember, I'm used to selling $500 16 week training packages where you have to show up
00:28:03like every, you know, three times a week to do stuff. I said $6,000. So for me, it was a 12X
00:28:11compared to the price that I was used to selling that. And I just said it. So I was like, he's just
00:28:14going to say, nope. And then I can just hang up and just move on to my next call. And he said 6K.
00:28:19And I was like, yeah, $6,000. And he was like, done. And I remember like floating out of my
00:28:29body in this moment being like, holy shit, six grand from one call. And I didn't even have the
00:28:39thing. I didn't even have the thing that I had sold him yet. Cause I just didn't think he was going to
00:28:42say yes. I didn't think to have to build it. Right. And so I was like, holy shit. And so then the next,
00:28:47so I had seven more calls. So I called the next guy, same conversation. Well, I was like, now I
00:28:50got to build this thing, but it went really smooth. And I was like, he was like, how much? I was like
00:28:55eight grand. And he was like, yeah, done. And I was like eight grand. I was like, I'm up $14,000 in a,
00:29:02I'm not even in a day. It's in a morning. So then I had six more calls. And by the end of the,
00:29:06you know, the next call, same thing, how much? 10K. Next call. And by the end of the day,
00:29:11I'd done $60,000 in, in collected. And I was like, what the fuck just happened?
00:29:19I had no idea what was going on. And so Layla came back after she was selling the $500 memberships.
00:29:26And I was like, babe, I was like, I just made 60 grand. And she was like, what? She was like,
00:29:32she was like, I thought we were doing the weight loss thing. I was like, no, I think we're still
00:29:35doing the gym thing. I think we were just doing it wrong. And this is why I'm telling you this.
00:29:39Cause like that moment of all the moments in my entire career, that was the moment where I
00:29:44elevated. That was the moment where my life really changed. And so I bring this up because you might
00:29:51be like, well, what, at what price point should I start? Right? It's going to be relative whether
00:29:54you're selling to consumers, you're selling to businesses. And this is just a couple of rules
00:29:58of thumb that I'll just tell you that I've kind of worked around. I'd say that for, for a consumer
00:30:03impulse purchase is five or $600. A higher ticket purchase is usually gonna be somewhere between
00:30:08three and $10,000. All right. Typically. And that's again for services. If you're looking at like
00:30:13assets, the different game, you're buying houses and cars, a different game, right? But if you're
00:30:16selling just like pure, I'm going to help you do some stuff. I'm gonna help fix some stuff.
00:30:19That's usually a price one that's called higher ticket business. It really depends on the size
00:30:24business. If you're selling a Disney, you can sell a billion dollar thing, right? If you're selling to
00:30:27just small business on main street, remember some of them are poor too, right? And so for them though,
00:30:33a more normal price for something will probably be somewhere in the neighborhood of like,
00:30:37I'd say like a mid tier is probably, you know, two to $3,000 a month. A cheaper price for a business
00:30:42owner would be somewhere in the neighborhood of like 400 to 800 a month. Maybe, maybe just call,
00:30:47call it closer to 500 bucks a month as like a, a cheaper number for a business. And you're like,
00:30:52$500 a month is cheap for a business. And I get super expensive for a consumer,
00:30:56pretty cheap for a business. Right. And so if you're like, well, where, where do I start? Well,
00:31:00if you're currently not making money out of zero and then think, what would I deliver for that?
00:31:04That's a great place to start. All right. And the thing is, is I know that part of you is fighting
00:31:08this. Like in your head, you're like, there's no fucking way anyone's going to buy that.
00:31:11No, there's no way the 50 poorest people, you know, could buy it. But for sure, the people above that
00:31:17line can. And part of the reason that you'd never close a hundred percent of prospects is because
00:31:21you're going to talk to some of these people. And the price point that you have to get an 80% close
00:31:26rate on, for example, is a price point that this person can spend five to 10 times more than the,
00:31:32than the bottom 50. That is why the tiered pricing is so important is that, and then you might find
00:31:38that you might just not want to sell to the bottom 50% until you have enough capital to actually build
00:31:42infrastructure. So you can do it in an automated fashion. One of the big issues I would say that
00:31:47poor people think about compared to rich people is that poor people will think in terms of cost. And I
00:31:52would say rich people will think in terms of the ratio, the return cost versus value. So if I were
00:32:00to say, Hey, I've got this thing. That's let's say it's, let's say it's $20,000. A poor person
00:32:07just hearing the price would say that's expensive. But if I said a rich person, if I said, Hey,
00:32:13my thing is $20,000, they wouldn't then say that's expensive. They'd say for what? And if I said,
00:32:19uh, share a class, a share of Berkshire Hathaway, which is an $800,000 stock for $20,000. That would
00:32:28be the deal of the century, right? If I said it was $20,000 for a brand new Lamborghini,
00:32:33they would say that's a great deal. So even though it costs a lot of money, it's great value. And this
00:32:39is what I did. I struggled for such a long time to understand because it was like, I almost had
00:32:44this emotional reaction to zeros. It's like, if I saw zeros, I was like, Oh my God, so much. Right.
00:32:48And, and so I know where you're coming from because you almost want to, you almost choke on the price.
00:32:53So I'll give you a couple of little tactics for this to like, get around it. So one is if you're
00:32:57in person, you can write down the price and then turn it and slide it to them. Or you can use a
00:33:01calculator and turn it to them if you like literally choke on the price. Cause some people do do that.
00:33:05The second thing that you can do, and this is a really good little, little pricing hack for,
00:33:10for selling is before you say the price, you say, Hey, fortunately the price it's super expensive.
00:33:16And so what's beautiful about telling someone it's expensive before we tell them the price
00:33:21is that if someone's rich, they're going to immediately think what's expensive for them.
00:33:26And so they're going to think a number and then you're going to say the number and they're going
00:33:29to, they're going to literally be like, Oh, fine. If they're poor and you say it's expensive,
00:33:34they're going to brace themselves for a number that's big. And then when you give them that
00:33:37number, they were at least braced for it. And so in either way, you actually create what I would
00:33:41consider an emotional anchor. That's perfectly accommodating to the buying power of the prospect.
00:33:47And most salespeople get choked up right at that point. So it's like give yourself a breather. It's
00:33:51going to be expensive. You take a breath, they take a breath, then you deliver. Right. So just
00:33:56a little tactic that works and also can help increase sales. So a good way to know if you're
00:34:01actually underpriced is to actually look at your close rates. All right. And so if your close rates
00:34:07are 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
00:34:19to 40 and then 30. Okay. So let's say these are your close rates.
00:34:25So that means if you talk to 10 people here, you close eight, right? If you're closing 80%,
00:34:32you probably right now have it a two to three X in pricing, sorry, a three to four X in pricing,
00:34:38excuse me, a three to four X in pricing, just sitting there. I know that sounds absurd,
00:34:43but think about it. You're going to get the 80% are not going to say yes anymore. I want
00:34:47to be very clear. You might drop to like 35%, but if 35% of people are paying four times more,
00:34:54you're making 120% of the revenue they were making before. All right. And so like you're making way
00:34:59more money now at 60, 80, you probably have a two to three X that you have sitting there in price.
00:35:06If you're between 50 and 60, you probably have a 1.5 X to two X sitting there. If you're at 40 to
00:35:1150%, you're probably at 1.25 to 1.5 X. All right. If you're here, I consider this to be appropriately
00:35:17priced. If you're closing 30 to 40%, you're priced about right. If you're below 30, I would say get
00:35:22better at selling. Which part of getting better at selling can be make the offer better or talk to
00:35:30better customers. All right. And so sometimes you will try and pitch a high ticket thing,
00:35:36but not have your core offer, which might be lower. So you have an anchor offer. But the people that
00:35:41you're speaking with, you didn't qualify them. So if I want to say, Hey, I'm talking to a million
00:35:46dollar plus business owners, I will have a significantly higher close rate if I'm only
00:35:50talking to them. And so most times you will dramatically change the feeling of your life.
00:35:54If you just say, we only deal with customers above this and of, remember all that money that was
00:36:00sitting on the table. So if you're looking at figuring out who you want to serve, look at this,
00:36:07look at these people. Where do you think you'd draw your line? If you say, I would like to make money.
00:36:13Do you want to talk to these people all day? Do you want to talk to these people all day?
00:36:19Or do you want to talk to these people all day? If you want to make money, go where the money is.
00:36:29And these people speak differently than these people. And so part of what many of y'all's
00:36:36marketing is and your price point actually tell these people, this isn't for us.
00:36:41So I, as somebody who is one of these people now, so I feel like I'm like calling back and telling
00:36:51you what it's like on the other side, right? Is that if I see somebody who sells B2B services and
00:36:58they sell something that's $1,500 a month, I know it's not for me. I don't need to know anything
00:37:03else because I know they're not advanced enough as a business to know how to cater to a company of my
00:37:07size. They just can't handle it. And so I have to deal with an entrepreneur who's got a $20,000 a
00:37:13month, $50,000 a month subscription for whatever their services are because I would believe that
00:37:19they could actually deliver. If you've got $69 here, 28 here, and two here, and think about the amount
00:37:25of conversations you've got to have here. You've got to have 10 conversations to have access to $69.
00:37:29Or you have to have 90 conversations to have access to 28 plus two, 30 bucks.
00:37:34Which would you rather have? Your price will signal to rich people that this is for them.
00:37:44And your marketing, if you're running flash sales and discounts and all of that kind of stuff,
00:37:50you're telling these people who have money, this isn't for you. I'm inexperienced. I'm
00:37:54a low level business owner, or I'm a business that purposely, I might be a higher level business
00:37:59owner, but I've truly made this to cater to the masses. So all of what I described is something
00:38:04called lead scoring or lead qualification. And so what that means is that there's a certain type
00:38:09of customer that's more likely to buy your thing, right? Somebody who has more money is more likely
00:38:14to buy your more expensive thing. And so if we know that the people who have the money are the ones that
00:38:19buy our expensive thing, then we should try and just tell the world we only cater to these people.
00:38:24So what will happen is your marketing, the volume will go down. The cost per call, the cost per lead
00:38:30will go down. But the amount you make will go way up. And so let me give you a real life scenario.
00:38:37When we optimized for leads for my book launch, we paid about five bucks a lead when we optimized
00:38:43just for leads, which is volume, all right? And we had another campaign that optimized for purchases.
00:38:50And those leads cost $17. The question is, which one would you go with? Now the poor business owner
00:38:59would say, well, $5 leads are better than $17 leads. The rich business owner would say, well,
00:39:03what kind of leads do I get? And so these $5 leads, after we finished the campaign, were worth $20.
00:39:10Okay, 4x return, there's something there. The $17 leads were worth $189. I don't know about you,
00:39:21I'd rather spend $17 to make $189 than $5 to make $20. And so one of the things that will change when
00:39:27you start serving the upper class, if you will, is that your cost per unit will go up. Your cost
00:39:32to deliver, your cost per sale will go up, but not proportional to the amount of money you will make.
00:39:38So I had to pay 3 1/2 times more for something that was worth 6 1/2 times the... Is it 6? No,
00:39:45that's 9. 9 1/2 times. So I had to pay 3 1/2 times as much for something that was worth 9 1/2 times
00:39:52the value. Which one's the better deal? This is an 11x. This is a 4x. This is what the lesser affluent
00:40:01do not understand. And this is why their businesses do not make more money. Now, the next thing that
00:40:07will come up is people will say, "Hey, I would sell for a really expensive thing, but no one will buy
00:40:13it." Because there's guys down the street who will sell for less because they're brokies selling to
00:40:17brokies. You're right. And that's because you can't sell the same thing. You got to sell something
00:40:24different, which is why I wrote my first book on this. Which is the first chapter is you're selling
00:40:29a commodity. You're selling something that someone could reasonably hold your thing and their thing
00:40:34up and say, "These two things are the same, so I'll pick the cheaper one." And that's reasonable for
00:40:39them to do it. The idea is that we want to price our things so high and be in such a clearly different
00:40:44category that people say, "These two things must be different. I have to analyze these independently."
00:40:48And so within the context of what do I get for my money, the rich person wants three things.
00:40:53They want it to be fast. They want it to be easy. They want it to be guaranteed. And so everything
00:40:58that you do that is more difficult for these people, you have to make easier and these people will be
00:41:03willing to pay for it. And so you pre-do some of that work for them. You pre-choose some of
00:41:08the food. You go ahead of time. You drive ahead. You scout the location. You drive into the door,
00:41:12whatever it is. But when you look at what does it cost for me to drive this thing to the door?
00:41:15It cost me 10 bucks, but they're willing to pay 100 for it. Whereas this person is nagging me on
00:41:20the last five bucks. It's a different game, but this is where all the money's at. And as you get
00:41:26further and further in business, you'll find out that it might be 40-year-old moms with at least
00:41:30two kids that live in these neighborhoods or these zip codes. That's the ones that are the best
00:41:34customers for your B2C thing. It might be if you're in home services, we only deal with homes over a
00:41:38million dollar value, which you can check their address and pull it up on Zillow or any other
00:41:43website before you even talk to the leads. You know what kind of house value you're getting into.
00:41:47Having those options available will show you in your CRM or whatever way you track data that some
00:41:52customers spend more. Then you want to take all that time and effort and look at those customers
00:41:57and say, "What makes these people different from everyone else?" And then that becomes your
00:42:00front-end marketing. And also talking to those customers and saying, "Hey, what about my thing
00:42:05attracts you to my service or my product?" They will tell you the things that these people value,
00:42:11which will be different than what these people value. And these people almost exclusively value
00:42:15price, as in they want the cheapest thing. They don't even want to hear because the same reason.
00:42:19They're traumatized by zeros, right? And so you can't judge whether you're priced appropriately
00:42:25by people who can never pay it to be in with. So in past videos, I've also talked about how
00:42:29when you start, you should start for free. I have a Chick-fil-A approach to pricing,
00:42:35which is I want you to start. It's either free or it's full price, right? Now I want to keep
00:42:42doing free until I feel a thousand percent confident that I can deliver. And then I go full
00:42:47price. Now within my leads book, which by the way, you can grab all three of the books for free hard
00:42:54back. I think five or six bucks each. Just cover the shipping. You can get all three. It's a special
00:42:59we have right now. If it runs out, apologies. The last time I did it ran out a couple of weeks.
00:43:02I break down how to go from zero to hero in terms of pricing inside of this book. Now part of that
00:43:10is me having to deal with the psychology of people who are beginners, right? And so my preference is
00:43:15to have kind of an algorithmic approach to somebody who like, "I'm telling you this so that you can
00:43:19jump the line." If you just cannot wrap your head around it, start for free. And then whatever your
00:43:23price was going to be, charge 20% of that, right? And you're like, "Great." And then do that for the
00:43:30next five customers. And then after that, bump it by 20%, and then bump it by 20%, and then bump it
00:43:35by 20%, five and 20, five and 20, five and 20, until eventually you're closing one out of three
00:43:39people. When you're at one out of three people, you're priced appropriately. And at that point,
00:43:44what do we do? We want to keep raising price over time because the reality of how services work is
00:43:50that you can tell how advanced the service business owner is by how expensive their product is.
00:43:54Because if you're actually good, you have more demand than you have supply. If you have more
00:43:57demand than you have supply, what should you do? Raise price. That's how the supply-demand curve
00:44:01works. And so you continue to raise your price until you're at a point where you're at equilibrium,
00:44:06where you can handle the amount of demand that you have. If you're still good, you still get more
00:44:10demand because word of mouth continues, and you keep going up. And that becomes the virtuous cycle
00:44:15of price and services. Because when you have a higher price, you have higher gross margins. We
00:44:19have higher gross margins, you can hire better talent. When you have better talent, you can
00:44:22deliver better services. When you have better services, you get better reputation. When you
00:44:24have better reputation, what does that do? It drives demand, which then drives price.
00:44:28And so this is the cycle that every business has to go through. And you signal to the marketplace,
00:44:34you communicate to the marketplace. Pricing is a two-way communication. You tell them what you're
00:44:38about, and then they will self-select as the correct customers for you. And so you can see where
00:44:44someone's at in their business journey by how high they are priced compared to people who sell
00:44:48comparable services. Because people will very much take price as an indication of value.
00:44:53They just do. Because in general, things that are priced higher are better. Not always, but often.
00:45:00It's a good enough rule of thumb that people in general will do that. Like this might blow
00:45:05your mind if you've like not met people with money. When they go to shop at a store, they price from
00:45:11high to low. They literally look at the most expensive stuff first, because that's probably
00:45:16the stuff that's for them. They don't want to save money anymore. They want to get better value.
00:45:22They want better stuff. They want to skip the line. They want to get it faster. They want it better.
00:45:27They want it to be a higher quality, you know, higher quality ingredients. They want it to be
00:45:32more made by somebody who's more noteworthy. All of these things. And fundamentally, that is what
00:45:37this book goes into tremendous detail talking about, which is the offers book. All right.
00:45:42So with that being said, sell to the rich. They pay better. It's better to sell fewer expensive
00:45:48customers than many broke customers. And if you sell to rich people for long enough,
00:45:54they will make you one of them.

Key Takeaway

To maximize profitability and business growth, entrepreneurs must shift from selling to the masses to targeting the top decile of wealth through high-ticket, tiered pricing models that reflect true value rather than cost.

Highlights

The top 1% of the US population holds more wealth than the bottom 90% combined

Timeline

The Brutal Reality of Wealth Distribution

Alex Hormozi introduces the fundamental reason why most people struggle to make money: they are selling to those who do not have it. He uses a pyramid analogy to represent the US household net worth of $163 trillion, illustrating how wealth is concentrated at the top. The top 1% alone possesses $32 out of every $100, which is more than the bottom 90% combined. This section emphasizes that competing for the small amount of money held by the bottom 50% is a losing strategy for small businesses. By visualizing this disparity, Hormozi argues that business owners must change their beliefs about what people can afford.

The Power Law of Business Profits

This section breaks down Pareto's Principle, also known as the 80/20 rule, and applies it to business profitability. Hormozi explains that 20% of customers provide 80% of revenue, but more importantly, the top 1% of customers often provide over 50% of the total profit. He introduces the concept of the "Power Law," where serving a single high-value client can be more profitable than serving hundreds of low-value ones. To illustrate this, he uses Tesla's top-down strategy of starting with the expensive Roadster before moving to mass-market models. He warns that serving the masses requires massive capital and automated infrastructure that most service businesses lack.

The 5-10x Pricing Rule for Upsells

Hormozi provides a concrete rule of thumb for pricing: each new tier in a business should be 5 to 10 times more expensive than the previous one. He demonstrates through math how adding a $50 tier to a $10 tier can double revenue and potentially 5x the profit. Many business owners make the mistake of having tiers that are too close together, such as $100, $129, and $139, which fails to capture the higher spending power of affluent clients. He shares his own portfolio company examples, showing price jumps from $5,000 to $35,000 and then to $135,000. This tiered approach allows a business to maximize the "willingness to pay" across different customer segments.

Operational Benefits of High-Ticket Sales

The speaker explains why selling to the rich is operationally superior to selling to the poor. Affluent customers often have lower "demandingness" because the purchase represents a smaller percentage of their total net worth. For example, a $100,000 fee is only 1% for someone with $10 million, whereas a $100 fee is 10% for someone with only $1,000. It is significantly easier to manage one client for $100,000 than it is to manage 1,000 clients for $100 each. Hormozi encourages entrepreneurs to stop "selling out of their own wallets" and realize that 1 in 10 Americans has a million-dollar net worth. He concludes that higher prices not only signal quality but also provide the margins necessary to hire better talent and deliver better results.

Overcoming the Psychological Barrier of Pricing

Hormozi shares a personal story about his first high-ticket sale, where he accidentally sold a $6,000 package by trying to get a client to say no. This moment broke his limiting beliefs about money and led to a $60,000 sales day. He provides advice on how to handle the "emotional reaction to zeros" that many beginners face when stating a high price. Strategies include writing the price down instead of saying it or prefacing the price by saying "it's expensive" to create an emotional anchor. He defines "high ticket" for consumers as $3,000 to $10,000 and for businesses as $2,000 to $5,000 per month. This section highlights that entrepreneurship is a spiritual journey of earning the right to value one's time.

Optimizing Marketing and Close Rates

This section focuses on using close rates as a diagnostic tool for pricing. If a business is closing 80% of its leads, it is likely underpriced by 3 to 4 times; a healthy close rate for a correctly priced offer is between 30% and 40%. Hormozi discusses the importance of "lead scoring" and qualification to ensure marketing efforts target the right demographic. He shares a case study from his book launch where $17 leads were far more valuable than $5 leads because they had a much higher return on investment. The goal is to optimize for absolute profit rather than relative profit or volume. He argues that high prices attract better customers who value speed, ease, and guarantees over cost.

Building a Virtuous Cycle of Growth

The video concludes by explaining the virtuous cycle created by high gross margins. Higher prices allow a business to invest in superior talent, which leads to better service delivery and a stronger reputation. This reputation then drives more demand, allowing the business to raise prices even further in a continuous loop. Hormozi references his books, "$100M Offers" and "$100M Leads," as resources for moving from a commodity to a unique, high-value category. He reiterates the core theme: "Sell to the rich, they pay better." By focusing on affluent customers, business owners can eventually join their ranks through the power of math and behavior shifts.

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