The first product you must sell in a new business…

Summary

• The goal of a business is to maximize revenue per customer by catering to different budgets without overwhelming product selections.
• Simplifying the product offering is key; for businesses under $1 million, sell just one product to one specific customer type (avatar).
• To scale from $1 million to $10 million, introduce a second product or service line but maintain simplicity.
• Use payment terms to accommodate customer's budget instead of increasing product variety; people focus on monthly expenses rather than total contract value.
• To increase customer retention, charge a higher upfront fee and offer lower monthly payments; this also helps cover initial costs such as ads and onboarding.
• Simplified product offerings and clear payment plans increase sales efficiency and customer clarity.
• Sales should focus on one primary offer, making the purchasing decision about payment terms rather than product choice.
• By structuring offers with high gross margins, businesses can accommodate different payment capabilities without compromising profit.
• Focus on solving the primary problem for the customer and use payment plans to adjust to their budget for higher lifetime value (LTV).
• This approach typically benefits small business owners under $3 million in revenue who struggle with operations.

Video

How To Take Action

I would suggest focusing on keeping things simple when running a business, especially if it's making less than $1 million. Sell just one product to one specific customer group. This makes running your business easier and helps customers know exactly what they can get from you.

If your business starts to grow beyond $1 million, consider just one more product or service. But remember, keep it simple. You don't want to confuse your customers or your team.

A good way of making products affordable for different budgets is to play with the payment terms. Instead of selling many different things, have one product with different payment plans. Many people think more about what they pay each month, not the total cost. So, you could let customers choose to pay in full, or break it down into smaller, monthly payments.

To keep customers for longer, charge more money at the start and then less every month. This helps you cover the costs of ads, salespeople, and setting things up for new customers.

When selling your product, focus on solving the customer's main problem. Let the payment terms adjust to their budget. This way, they get the help they need, and you can make more money over time from each customer.

Also, whatever you offer should have a high gross margin. This means you keep a lot of the money you make after removing the costs of delivering your product or service. By doing this, it doesn't hurt your business if some customers choose to pay a little bit each month.

Remember, simple is better. Don't overwhelm yourself or your customers with too many options. One clear product that solves their problem, with different ways to pay, can help you and your customers a lot.

Quotes by Alex Hormozi

"One of the goals of any business is to maximize the amount of revenue per customer you generate"

– Alex Hormozi

"People do not look at the length or the total contract they're signing, they will only pay attention to what is it going to cost me every month"

– Alex Hormozi

"The bigger the head, the longer the tail"

– Alex Hormozi

"A confused mind doesn't buy"

– Alex Hormozi

"Making offers people cannot say no to"

– Alex Hormozi

Full Transcript

in this video i'm going to talk to you about one of the questions that i get most frequently and that i one of the problems that i have to solve again most commonly in some of the companies that we take on in our portfolio one of the goals of any business is to maximize the amount of revenue per customer you generate right and a lot of times you want to have what's what's called like an accommodating buying curve and so what that basically means is at every rug right if someone is wealthier you want them to buy more and spend more money with you and if someone has less money you want them to still buy from you but potentially buy for less right and so this gives way to a lot of these crazy product and service listings where people have you know 100 different services and products that they offer because they want to have the ability to serve everyone at the maximum degree the thing is is that most times that will create so much operational complexity and create so many little appendages right little sticky things that are stuck onto the side and bolted on and globbed and duct taped onto a business that it becomes incredibly distracting for all of the employees because they're thinking about all these different things and here's a funny one is that most times if your employees don't understand all the different types of things you sell and the price points you sell them at your customers for sure don't one of the things that we will do when we're looking at a company is we will simplify the product offering and instead try and reach the maximum buying threshold per prospect by changing the payment terms now in a perfect world if everyone had absolute information and everyone was unbelievably well trained and you had great infrastructure and all that stuff then yes the more products and services you offer in theory you would make more money but we don't live in that theoretical world most of the time and most small business owners are not that good at operating right it's the number one issue they have they're super disorganized they feel like they're spinning their reels all day their team completely has no idea what which way they're going they change things all the time etc and so in an effort to combat that we have used this process over and over again and it has worked very well so it is as follows we sell two things and i've done this in virtually every business that i've ever owned we sell two things two products or two services and this is once we're going from one to ten million all right zero to one million you sell one product and one service one avatar all right that's it one channel one product one avatar that's it right but once you're going from one to you know one to three ish million and you're trying to go to ten you introduce the second product line and so here's how this works if you have two things that you sell you'll have a front-end thing and you'll have a back-end thing we can still have a massive accommodation in the buying curve based on the payment terms that we introduce so for example people will look at their monthly expense more than the total contract value that's a huge money hack i'm giving you right now this is a wealth hack this is something that will build make you a fortune in your life if you can properly understand this people do not look at the length or the total contract they're signing they will only pay attention to what is it going to cost me every month because no one is good with their money all right so they only look at the cash flow expense month over month over month and they just think can i make it happen yes cool i'll sign they don't think about the total contract value for you as a business owner the contract value matters almost more than anything so i'll give you a quick hack on this total side note tangent for you life hack pro tip if you want to extend the contract value that you have i have a saying which is the bigger the head the longer the tail all right and so what that means is the more you can get someone to pay up front and relative to the upfront cost of signing up or what they paid down the lower their contractual recurring payment is the stickier it will be so i'll give you an example if i had someone sign up for 99 a month for whatever it doesn't matter that price point might be medium sticky depending on the value that i have now imagine i had someone pay five thousand dollars down and ninety nine dollars a month after that how much more sticky would it be significantly more sticky now the beauty is if you have one of these up front tight payments you can also use that to liquidate your ad cost cover your commissions for the salesperson cover the upfront fulfillment in onboarding which is going to cost more for a new customer than an existing customer and so you can build all that in if you know that the thing that you are selling has very high gross margins then you can still have a lower cost as long as you know that the person is going to stay for a long time and so based on how you structure the pricing you can actually get some you can use the pricing to actually get people to stick longer pro tip complete that is it moving back to the original thing that i was talking about in one of our portfolio companies we actually had this as a really in-depth discussion that we had to make a decision about all right and so they had a different you know mentor person whatever advice uh who told them that they should have three products and they should have a you know low a medium and a high product and then based on you know what the salesman thought the salesman would sell them the low medium or high in my experience it is not that effective and that is because the salesperson can't decide which of these things they are trying to sell most of the time and so what we have found is more effective is you give the salesperson the one dream to sell this thing is going to solve this person's problem and we make it the most valuable thing that we're trying to sell because at the end of the day you do want to solve the the customer's problem right we do want to actually make sure that we're providing value rather than having a diet a medium and a grate right simply having one thing that solves all the problems and then based on the the customer's budget we can decrease how they pay all right so hear me out so let's say that uh we want to do a uh this is a six month implementation of whatever kind of solution you sell if you have a six month duration you can have the person a pay the entire thing up front so that would be for somebody who has the highest budget version two would be a split pay version three might be three payments right with at twenty percent higher and then finally you might have a have a have a you know a six pay or whatever over that period of time so one two three six now here's the cool thing the more payment options you provide the higher your conversions are that's proven all right so the more options you give someone to pay the more people will buy period now you might not make more cash flow because if you give your sales guy more options then they might use though they'll end up defaulting to the lower ones right but if you have one thing to sell then they only have one thing to convince the person of because a confused mind doesn't buy if you have too many options the salesman won't know what to sell and the prospect won't know what to buy and so i prefer when i'm coming into our portfolio company i'm thinking what is this true problem that we are solving with this business for what avatar and we make that the main thing and we communicate it clearly in the scripting and the sales person has clarity on what they are selling and they're always solving the same thing and so the question becomes no longer which of these things are you going to buy but once you are buying how would you like to pay and so then the discussion is around what payment plan is best for them rather than what product is best for them and so by doing that you can get people to go between different payment terms that is not going to change whether they're going to buy but if they're unsure about which product is going to best suit their needs and the salesman doesn't know because at the end of the day he's just trying to sell the most expensive thing then you'll have way more confused people who leave on soul so this is a single tactic that you can use to execute within your business which is why i'm a big fan of making offers people cannot say no to is that you can focus all of your sales and all of your persuasion attempts on selling the one thing which is getting them to say yes once they say yes we can we can reach the we can accommodate their wealth and their budget based on the payment terms that we provide and if we have done or we've structured our offer properly the offer in and of itself should already be very high gross margins which means whether or not the person pays a thousand dollars a month or a hundred dollars a month it's still almost all margin for us because of how we structure the thing that we are selling and so we are able to capture higher ltvs by getting the people who have more money to prepay the thing up front that is how we do it and with those people you'll be able to ascend into the second thing faster because they've already prepaid that thing and then you can solve the next natural problem in another sales conversation rather than trying to pick all of the things in one conversation which makes it incredibly difficult to do this is just for everyone again a broad brush stroke of statements for most entrepreneurs who are not very good at operating their businesses uh her operations is not their strong suit and are below three million dollars a year all right so anyways moseynation there's a lot of people who are broke i don't want to be one of them which is why i make these videos keep being awesome i love you and i'll see you guys next bit bye