The SIMPLE FORMULA that has DESTROYED BILLION DOLLAR BUSINESSES

Summary

• Understand the three key lines in your business: price, value, and cost of goods.
• Ensure there is a significant customer surplus, which is the value customers feel they receive above what they pay.
• Create a product that provides immense value but costs you very little, echoing the Netflix model of high margins and customer satisfaction.
• Aim for a customer surplus that is so great that it prompts word-of-mouth marketing, effectively reducing your customer acquisition costs to zero.
• Focus on scaling your business through word-of-mouth rather than solely relying on traditional marketing methods.
• Strive to adjust the three lines – provide maximum value, minimize cost of goods, and set a price point that ensures valuable customer surplus.
• Utilize this framework to not only improve your own business but also to understand and assess the value proposition of potential competitors.
• By focusing on delivering high value at low cost, you position yourself to make a significant profit and help a vast number of people.

Video

How To Take Action

I would suggest focusing on creating a product or service that delivers amazing value at a low cost. First, think about what can offer a lot of value to your customers, something they'll love and talk about. This could be anything from a handmade item to a unique service. Now make sure that this awesome thing doesn't cost you much to make or do.

Then, set a price for your product or service that's fair but also lets you make a good profit. Remember, the more value customers feel they're getting compared to what they're paying, the happier they'll be. That means they'll want to tell their friends about it.

Also, always look for ways to make your product or service better without increasing costs. This could mean finding cheaper materials that still do a great job or making your processes more efficient.

Keep an eye on what your competitors are doing too. By understanding their price, value, and costs, you can figure out how to make your own product or service stand out.

Let's make sure to give customers so much value that they can't help but talk about us. If we do this, we won't have to spend much on marketing because our happy customers will be doing that for us, for free. The key to growing your business and making a lot of money is to master these three things: price, value, and cost. Let's work on that and help a lot of people while building our businesses.

Quotes by Alex Hormozi

"The higher the surplus, the greater the distance between these two things here, the more value they will perceive that they have gotten from your services"

– Alex Hormozi

"The bigger you do this discrepancy, the more viral your business will become"

– Alex Hormozi

"If you conquer this piece, you conquer the customer surplus in terms of how much value they are getting for what they are paying, then you will have an infinitely scalable business"

– Alex Hormozi

"The goal should always be to have a business that grows on word of mouth"

– Alex Hormozi

"If you have the surplus big enough and you go from good to great and great to so good that people cannot help but tell their friends about you, remarkable or remark worthy, then you will have more customers than you know what to do with"

– Alex Hormozi

Full Transcript

welcome to mozy nation in this video i'm going to be sharing with you the three most important lines that you need to draw in your business that you probably are not and i want to show you some different uh combinations of these lines and how dramatically it will impact how much money you make and ultimately the value of the company that you ultimately build so if you don't know my name is my name is alex from mozilla and acquisition.com we do about 85 million a year this is a rona sponsored episode so if i'm less chipper than normal that is why uh we thank our sponsors as always and so these are the three lines that i think everyone needs to understand all right so line number one right here i'm going to make sure that you guess so if you can guess right now which each of these lines are going to represent you have price you have value and you have cost of goods all right so every line has every business has these three lines within everything that they sell you have how much you sell it for you have how much value the person gets and you have what it costs you and what i want to show you is a mental framework and the interplay between these things and how dramatically it can shift your business so this is the value line this is what they are getting this is the price line this is how much you charge this is the cost of goods line which is how much it costs you to fulfill on this value right right okay so here's where it gets kind of cool if we move our price up see how little value we have here this means that we have a low customer surplus customer surplus is the excess between what they pay and what they get the higher the surplus the greater the distance between these two things here the more value they will perceive that they have gotten from your services the bigger this discrepancy is the more viral your business will be imagine there was a day years and years ago where you could have access to everything in the entire blockbuster store on demand from the comfort of your home and you could do it for less than it cost to do a new release and uh to rent a new release wouldn't that be amazing well they did create that and that was called netflix and so what they did was they priced it so low but their cost of goods was still lower because the cost of the incremental cost of adding a single customer was is basically nothing right and so their gross margins here is still very high because for them they can still lower these things even more and so what i'm telling you at the end of this video is that the trick to how you actually can build a fortune simply understanding the interplay between these three lines if i have one takeaway for everybody who's watching this is that if you can think about your business just using these three lines then you will be able to build a fortune if we have here our cost of goods at the bottom and we raise this all the way to here and we have a you know a ton of customer surplus what kind of business is this this is going to be a business that probably doesn't need to market very much this is going to be a business that is probably operationally difficult probably a service-based business and probably runs on very thin margins many businesses run like this these are a lot of old-school businesses that grow consistently every year by you know 10 15 per year and they don't have a ton of money to reinvest in resources they're very operationally efficient in order to run a business like this that's business scenario one let's see if you can guess what type of business this would be so this is mostly for generic mom-and-pop businesses decent margin let's say this is the baseline here sorry there's our baseline decent margins here decent margins decent value just kind of another run-of-the-mill business um nothing underwhelming or overwhelming about this business and this is what most small businesses operate like so let me tell you what type of business i would like to try and create my goal is always to find a way to provide something that's excessively valuable that cost me almost nothing to make unique expensive sticky air for those you know guys who know that channel it's one or one of that video it's one of my favorites i want something that costs almost nothing provides tremendous value and creates a big customer surplus and here's what's crazy the bigger you do this discrepancy the more viral your business will become for me as i feel like i've aged in entrepreneurial doggy years the more i strive for this than anything else because if you conquer this piece you conquer the customer surplus in terms of how much value they are getting for what they are paying then you will have an infinitely scalable business because you will have a quadratic way of expanding which is through word of mouth which is the antithesis of what everyone in the marketing world will tell you but the goal should always be to have a business that grows on word of mouth the problem is most people don't have enough word of mouth because this surplus is not big enough if you have the surplus big enough and you go from good to great and great to so good that people cannot help but tell their friends about you remarkable or remark worthy that is how good it is then you will have more customers than you know what to do with and your cost of acquisition will be zero and your your business will grow quadratically not linearly that is the difference between making money and building a fortune and i thought of this visual with the three lines and i just thought it was really telling and so i thought i would keep this short in the spirit of rona to show you this but if you can think through how you're providing value and really focus because the things that you can control you can control all three of these variables but when i'm trying to diagnose a problem that i want to solve as an entrepreneur i think how can i provide the most value step one step two how can i lower my cost of goods sold to a crazy degree and then once i know how i can lower my cost of goods sold to a crazy degree i'd rather have something that cost me a penny that i can sell for 10 cents that has the value of 10 and if you have that kind of value that you're able to deliver you will make a literal f ton of money and so i think this is a useful framework you can plot your own business you can probably plot your competitors business using this simple framework and i thought i would give it to you because it's one of the tools that i use when i'm thinking through how valuable an enterprise could potentially be and how i can move these lines around to create value create margin and ultimately take home the most money and help the most people just like everything that we do hopefully the price that you paid was the time the value that you got was hopefully a framework that you can use to apply to your business and the cost to get sold for me is the time that it takes me to do this and the the many failures and lessons i've learned and suffered the hard costs of failure to make these little uh frameworks for you so anyways moseynation i love you guys uh the reason i make this stuff is because a lot of people are broke and i don't want you to be one of them keep being awesome if you enjoyed this hit subscribe if you didn't love either way catch you guys next video bye