I spent $1,025,000 for this business tip…it paid off

Summary

• I recently witnessed the power of manipulating supply and demand at a charity event hosted by Arnold Schwarzenegger, where ticket prices were raised from $10,000 to $25,000, resulting in more sales.
• An individual who made his fortune in high-end jewelry shared with me the strategy of reducing supply when demand increases to inflate prices, as seen during the pandemic for certain goods.
• Brands like Chanel create demand through artificial scarcity, making products like their bags highly sought after and allowing them to charge premium prices.
• Business owners often miss out on charging more because they undervalue how much a customer might be willing to pay for a product or service.
• When you reduce the availability (supply) of a product or service, not only can you raise the price, but you can also provide better service and create a more exclusive experience.
• Marketing is a tool to artificially stimulate demand, which shifts the demand curve and allows for even higher prices to be justified.
• Cutting supply to a very limited number or even to zero creates a perception of value and exclusiveness, which can greatly increase pricing power.
• Letting demand build up like pressure in a pot allows you to release it periodically, producing bursts of sales at higher prices.
• I recommend creating an ultra-scarce product or service in your business because it will allow you to sell at higher prices, attract more buyers, and ultimately, harness the power of the supply-demand curve to your advantage.

Video

How To Take Action

I would suggest implementing a strategy to leverage supply and demand dynamics in your own small business or personal growth journey. Here’s what you need to do:

First, think about your products or services and pick one that you can make ultra-scarce. Limit the number of items available or the number of clients you take on. Just like in the example of high-end jewelry or designer bags, creating scarcity can make your offer more desirable and allow you to charge higher prices.

Remember, it’s not always about offering more; it’s about offering better. When you reduce supply, not only can you increase your prices because of perceived value, but you can also focus on delivering exceptional service to your fewer customers.

Use marketing to stimulate demand for your product or service. This doesn't have to be expensive. It can be as simple as teasing new offerings on social media or building anticipation through email newsletters to your existing customers.

Build up demand by communicating the value and exclusivity of your scarce product or service. Allow customers to pre-register or join a waiting list. This generates interest and turns your offer into an event with its own momentum, driving demand even higher.

Then, when the time is right, release your offer in limited quantities to create bursts of sales at those higher price points. Watch as people who really want what you offer come forward, willing to pay more for the limited opportunity to have it.

Finally, don't underestimate the amount someone is willing to pay for your product or service. Price it based on the value it provides to the customer, not just the cost to you.

By building scarcity and managing demand, you transform your business into one that commands higher prices and delivers a premium experience to your customers. Give it a try, and you’ll find that people are often willing to pay more than you think.

Quotes by Alex Hormozi

"When demand increases… you cut supply"

– Alex Hormozi

"If you've ever really wanted to buy something and you… were about to be told the price, and you got kind of scared just like you're exposed because you're like I really want this thing, that is a missed opportunity"

– Alex Hormozi

"The demand curve can shift based on marketing"

– Alex Hormozi

"Demand is the power that's coming towards you"

– Alex Hormozi

"You could say 'Oh, we're completely capped out,' you could cut off your supply to zero"

– Alex Hormozi

Full Transcript

what's going on everyone in today's video i'm going to show you how to charge exorbitant prices for your goods and services so not that long ago my wife and i were at a charity event for after-school all-stars at arnold schwarzenegger's house and i saw some of the most beautiful displays of understanding market economics um that i've ever seen and so at the end of that night i had my hand raised and i donated a million dollars alone that evening based on the way that they had manipulated the event and so to rewind this story for you briefly um right as i was coming into the event right as people were meeting each other they wanted me to introduce me to some of the other board members of the charities the ceo of the charity ben was talking to one of the other gentlemen there who's a big donor and he said ah what uh what he did and what he what his recommendation was was brilliant and i was so afraid to do it but i'm so glad we did and i was like well what did he say to do he said well last year we sold the tickets for ten thousand dollars uh ahead just to attend the event and play poker he said but this year it was 25 000 and we actually sold more people and i was like that's crazy and the gentleman i found out later had made all of his his fortune in the ultra high-end jewelry business and so that is a business of purely understanding the demand curve supply and demand and how to raise prices and so he said something to me and he said it's so smugly and so like content with himself in this moment that i just it just like etched into my brain he said you always have to remember when demand increases he said you cut supply and he said it just like he said you cut supply and what that does is it jacks prices through the roof because now you have more people who wanted it than before and there are fewer items for sale and so by doing that you get these massively inflated prices which plenty of us probably saw during the the whole pandemic and things like that that happened on some goods that were there all of a sudden demand increased right and so as extension and supply went down and then that is what jacks up prices and the thing is is you can harness that in your own business all right so if you've ever looked at chanel for example if you if you want to buy a chanel bag and these are the best people to look at the people who've been doing this for hundreds of years you know at least 100 years like you know i think don't correct around that but long time right louis vuitton they have figured out they have hacked how to generate and stimulate demand all right so in a channel store for example they have one to two bags that are available corporate doesn't let the stores know how many and of what bags they're going to receive it's a complete mystery complete surprise and they don't tell them when they're going to stop producing stuff and they do it all the time and so what happens is they create this experience where when you walk in the door there's absolute scarcity there because every bag is limited edition there's only one of a kind there might that might be the only bag you ever see you can't even buy these things online and they do that by design so they can stimulate higher prices and so just as a as a quick one on this um i don't know if you've ever really wanted to buy something and you uh you know right as they were about to tell you the price on the thing you got kind of scared just like you know you're exposed because you're like i really want this thing right and all of a sudden they tell you the price and you're like thank god i would have paid so much more than that that is a missed opportunity because you would have paid so much more and as the business owner you need to know how to stimulate that and so i'll tell you one final example and then i'll get into this price curve behind me if i were to sell um a a day of my time for five people right i could probably say tomorrow hey it's twenty thousand dollars for a day there's five of you in the room it'll be intimate click here to buy right sure but what i'm missing is the number one and number two people of those five might have been willing to pay two hundred thousand dollars for that day and so the thing is is as you as you cut cut units so this is supply this is demand this is microeconomics 101. as you cut supply right as supply goes down then what happens is you can look all the way on this demand curve right supply goes down you can raise the price here what ends up happening most times is that people will cut their supply but then they will keep their price uh at a lower price right it's like they'll cut the supply to here but they'll they'll price here rather than pricing all the way here and the thing is is there's so much extra juice in the squeeze that's available for you if you just know this and so my first recommendation for you is if you can create a limited or very scarce service or service level or product that you can release i guarantee you that you will make more money this is the reason and one of the things that isn't taught about this microeconomics demand curve is that they assume a static condition meaning perfect marketplace all people have perfect information and as you shift the price you know that you you try and find the sweet spot but what they don't think take into account is that this demand curve can shift based on marketing so if you think about marketing isn't in a general perspective marketing is artificially stimulating demand you're purposely letting more people know about what you do so that you can generate demand inwards so you can shift your way this way on this on this graph right i'm sorry this one described excuse me and so what we can do here is that if we have stimulated demand demand goes this way right boom it goes all the way down to here which means that our prices we actually can go even further along this curve to increase the price and here's one of the magic things about when you control supply if i were to sell three people that hundred thousand dollar day for example i made a more money than i did selling five people a 20k a day but not only that it's easier for me to fulfill for three people so i create less operational drag i have way more profit right and i create an error of premium and i can also delive over deliver to those clients even more than i could before all right and so if you have a fundamental understanding of how this works the supply demand curve then you can work in your favor and one of the biggest mistakes that i see with most entrepreneurs is that they spend too much time trying to supply and not enough time trying to generate demand demand is the power that's coming towards you stimulate is you satisfying and so you want to think about it like a seductive dance right where you someone someone has this desire right but you want to delay you don't want to satisfy me you want to delay you want to delay right now there is a snapping point where someone eventually feels rejected but it is far far far longer and further away than most people think right and so what you can do is you you tease things you you you flirt with them you whisper things that are coming out you drop these little hints drop these little hints right you create a waiting list right if you had a service and you said hey to work with me i'm all the way over here because i can only take five clients period period and you cap it and you cap it right you have five clients period well i can i can uh i can set you up with a waiting list and i'll let you know when we have more slots you will generate more demand because also the allure around what you do he must be good or she must be good because they have a waiting list because they they are no longer at capacity and so one of the interesting things about being at full capacity is it's completely up to you what full capacity means you can say today that you are full think about that you could say oh we're completely capped out you could cut off your supply to zero right and so as soon as you cut your supply to zero your price shoots that way right and so you cut your supply to zero saying i don't take anyone and then what happens is this pressure builds and it looks it's like a pot right and then you you want to periodically let off the steam you don't want to be letting off the seam all the time because the pressure never builds and that pressure is your pricing power and so to wrap this all up for you the reason it was such a such a tremendous experience for me to see this happen in the real world is i saw them go from ten thousand dollars to ticket to twenty five thousand a second and i saw them sell more right and so by understanding this when you have a limited edition t-shirt and you drop it you will actually sell more units not because this curve is wrong but because the way you marketed it by creating scarcity shifted the demand curve in your favor people who might other not otherwise buy or say i'll buy later now feel forced to buy and by extension we can jack our prices and actually end up selling more units overall and so to wrap this up for you one if you can create an ultra high very very very scarce very very small supply type service or good or product i guarantee you'll sell for more money you'll get more people to buy it and i think that if you just do that in your business in some way you will see this power harness to your advantage and you'll see the pricing and profit around these things and you'll never want to go back so hope you enjoyed this click subscribe and i'll see in the next video