NEVER lower your prices…
Summary
- If you're selling something you truly believe in, you're likely to make more money.
- Conviction in your product can lead to the decision to increase prices for the better.
- When I switched from a $99 to a $299 per month program, I tripled my prices but added more value, resulting in doubling the revenue despite losing one-third of my customers.
- Attempting to decrease churn by lowering prices can be a costly mistake.
- Lowering prices from $800 to $600 per week led to a $5 million annual profit loss without a change in churn.
- If you add more services and lower your price at the same time, this can be harmful if your churn doesn't decrease as you expect.
- Increasing costs by $1 million annually and reducing top line by $400,000 per month is a bad combination if churn isn't affected.
- There are six ways to increase lifetime value (LTV): increase prices, decrease costs, and focus on resells, upsells, cross-sells, and down-sells.
- In most cases, providing more value and charging a higher price will make you more money, while servicing fewer people at higher prices.
- Usually lowering your price leads to making less money, even with increased value provided.
- Small changes in pricing can have a significant impact; increasing prices can be better than lowering them for profit margins.
- Understand the relationship between pricing changes and profit; reducing prices may necessitate selling more for the same profit, while increasing prices might not reduce sales as much but can increase profit.
- Making pricing decisions should be approached cautiously, as they can have substantial impacts on your business's financial health.
Video
How To Take Action
Okay, here's what you should do if you want to make more money and grow. Believe in what you're selling. That's key. If you know you got a great product, you might want to bump up that price. Adding value can justify a higher price tag, and that could mean you make more cash, even if not everyone sticks around.
Here’s what went down when I made my move:
- I switched from a $99 to a $299 program because I believed in it more. I lost some customers, but still doubled my revenue because I was giving them something much better.
- I tried lowering prices to make customers stay longer (churn less). Not a good move. I cut prices and added more services. The thing is, it didn't work – churn stayed the same and I lost a lot of profit.
So, here's what you need to do:
- If you're gonna change your prices, think about lifetime value (LTV). Can you bump it by doing things like adding upsells or cross-sells instead of lowering your prices?
- Think real hard before you drop your prices. You gotta sell a whole lot more just to make the same amount of money.
- If you do raise prices, guess what? You might not lose as many customers as you think but could make a whole lot more.
Always remember, pricing decisions can really shake up your business. Be smart about it. If you can provide more value, and charge for it, go for it. Helping fewer people at a higher price can actually work out better.
Quotes by Alex Hormozi
"Pro tip: If you can sell something that you truly believe in, you'll make a lot more money"
– Alex Hormozi
"Most times when you lower your prices, you make a lot less money"
– Alex Hormozi
"Providing more value and charging a higher price… will make you more money"
– Alex Hormozi
"Servicing fewer people at higher prices… will make you more money"
– Alex Hormozi
"Small tweaks, big changes, lots of impact"
– Alex Hormozi
Full Transcript
boop one decision five million dollars a year i lost as a result of this i want to tell you about one of the scariest decisions i've ever made my entire life which was when i had my gyms i was selling a boot camp at the time this is before i knew a lot about pricing and i was charging 99 a month and i uh got really fed up at one point and i was like i don't think i'm helping people i want to have semi-private because this is where people are really going to transform their bodies and i want to sell with conviction right so just keynote sidenote pro tip life hack if you can sell something that you truly believe in you'll make a lot more money and so i had gotten to the point where i didn't really believe in boot camp as a vehicle for for personal transformation in terms of body wise and so i was so convicted about our summer private program because clients were getting way better results there that i wanted to switch all my clients over that now i couldn't do that at 99 a month and so i sent a mass letter out to my customers that said we were going to go from 99 a month to 299 per month so i was going to triple my prices add more value but i was going to triple my prices all right and at the end of this video i'll tell you what happened when i sent that email out now what i want to do is tell you a secondary story of a similar situation that happened later on in my business career all right and it was we were we were selling our uh program at 42 000 per year all right um at the time and that was being billed at 800 bucks a week roughly all right and i uh wanted to decrease our churn and so i've been i was trying to figure out a way to decrease our turn so we could extend you know increase our lifetime value per customer and i kept you know all my my team and all that stuff they're like we have to lower our price we have to lower our price and i hate i hate lowering prices i don't like lowering prices it just generally doesn't mean you make more money after a long time i said you know what fine we're going to add more and we're going to go to 600 per week all right that's what we're gonna do all right which if you're doing the math it's like 31k that's what i decided to do let me tell you what happened in each of these scenarios as soon as i made this change right here all right so what i did was i did this big announcement i said we're going to roll out this new additional services program and i did this huge presentation in this huge pitch i stacked it and stacked it and stacked it and i was like and you're going to get all this stuff and you're all going to get a discount and that's what i said and everyone was like yay i actually did have one person complain to me um they said why are you doing this now you should have been discounting us before which just goes to show you that no one will ever be happy with what you're doing i was literally saying that they can pay less and i got somebody upset with me and so anyways i decreased the price and so this is what ended up happening my churn remained completely unchanged and i lost five million dollars per year in profit boop one decision five million dollars a year i lost as a result of this and so i can tell you firsthand most times when you lower your prices you make a lot less money and so what happened to me is that my overhead stayed the same it actually went up a little bit so i added about 100k a month in in overhead to my business so that i could add for this this new service all right and then i decreased my price by 25 so imagine cutting top line by 25 which is literally what i did and by making this little beautiful combination so i increased my cost by 1 million dollars and i decreased my my top line by 400 000 per month at the time for that business it sucked because here's the beautiful thing i thought hey if i decrease this price if i can cut our churn by half right which is what i thought i was going to be able to do if i could cut my churn in half let's say from 10 to 5 i would still 2x ltv so i'd rather decrease by 25 percent but then 2xl tv i'll take that trade every time right aha but that's not what happened turns stayed the same and i just lost 25 of top line which if we were running a 50 margin business right i just lost half my profit which we weren't we were actually running a 70 margin business at the time right and so i actually cut my income by a third which sucked for that business it was not fun i highly recommend not doing it and so that was the first thing that happened so let me tell you the story that i started with this puppy all right where i had my clients and i told them all hey this is what we're gonna do i'm gonna give you two weeks for free so i did have to front this labor two weeks free of this new service it's much better you're gonna get way more personalized attention you're gonna be lifting weights you're gonna learn form all this type of stuff and i said after those two weeks you're gonna automatically all be enrolled at 299 per month let me know if this is going to materially affect your life and you won't be able to buy groceries as a result of this decision so here's what happened one third of my customers left they said alex you suck i can't believe you're raising prices on us blah blah blah two-thirds of them stayed at three times the price what happened i 2xed the revenue of my business and i serviced only two-thirds of my customers which means my cost of fulfillment went down and my revenue went up excellent combination and so by doing that one thing i was able to more than 2x the profit of my business and so i tell both of these cautionary tales as i was petrified to make both of these decisions one of them dramatically increased the profit of my business the other one dramatically decreased the profit of my business in most cases providing more value and charging a higher price in order to provide the higher value will make you more money because you will service fewer people at higher prices the reverse of trying to service more people at lower prices by also providing more things most times will make you less money especially in a service-based business and so i tell this cautionary tale because it makes me sick to think about it but hopefully it uh it makes you sick to think about it and if you're contemplating what should i do with my prices because i would like to increase my ltv the ltv can be increased in six ways all right number one you increase your price number two you decrease your costs and then number three four five six are resales get people to buy more times upsells get them to buy more of the stuff they're currently buying cross sells get them to buy different things down sells get people who are not going to buy to buy something all right so this is you're buying burgers once a week now i want you to buy burgers twice a week this is you go from a small burger to a big burger this is would you like fries with your burger this is would you like a junior burger instead of your current burger so that you buy more or buy something instead of buying nothing so these are the six ways that you increase ltv you'll notice what i was trying to do was get more people to do this and i cut this and i lost and so i tell this story to hopefully get more people to not make the terrible mistake that i did and i have learned that painstakingly and most times i would say 99 times out of 100 when you lower the price you make less money sometimes you make more but the vast majority of time you make less so and i'll tell you one final thing to illustrate this concept that i think everyone should understand so let's say you've got a 100 thing here and let's say your profit is 40 bucks if you decrease your price to 80 bucks right on this product you would have to sell two times as many people at this lower price because you have half the profit right say this is cost most times if you make this kind of change you're not going to two extra sales but you will make half the money so make sure that when you're making these changes and here's the flip side if you were to take this and go to 150 right now you're making let's say we're now making ninety dollars so we more than 2x our profit you probably won't sell half as many customers you might just sell three quarters as many customers and make two times the money which means more than what you're making now small tweaks big changes lots of impact think through these decisions my name is alex mozy own acquisition.com we have a portfolio company of 85 million dollars in revenue yearly my goal is that for everybody in this channel there's a lot of people who are broke and i don't want you to be one of them if you enjoyed this you found value in this in your own business hit the subscribe button so we can give you more vids like this and if you did not i love you either way keep being awesome and i'll catch you guys next vid bye
