SECTION II: PRICING / HOW TO CHARGE LOTS OF MONEY FOR STUFF
The commodity problem
- The importance of growth:
Business maintenance is a myth. The stock market grows by 9% each year. You should increase by at least 9% to “maintain”. And if you’re in a market that has 20%,30% growth, you’ll have to match that or you’ll fall behind
- How to grow?
You grow by:- Having more customers
- Have them be worth more by getting them to buy more or increase the profit per purchase.
- Some business terms explained:
- Gross profit = revenue – direct price of fulfilment (product price, labour … exclude marketing/sales cost ..)
- Lifetime Value (LTV) = gross profit over entire lifetime = gross profit x number of purchases an average customer will make over their lifetime
- Value-driven vs Price-driven purchases:
- Price-driven: Commodities that everyone sells. You have to be cheaper to win the customer and it becomes a race to the bottom
- Value-driven: being differentiated and selling in a category of one with no comparison.
- Having a “grand slam offer” allows you to differentiate yourself and be value-driven not price driven. Even if the fulfilment is the same if you craft a unique offer and not offer a simple commodity, it’ll appear like a totally different product.
Find the right market = A starving crowd.
The four indicators to look for when picking a market: 1- Pain 2- Purchasing power 3-Easy to target 4-Growing
- Pain: Your target market must be DESPERATE for what you’re offering.
Pain= frustration. The more painful, the more expensive you can price your solution. If you understand and articulate your prospects’ pain well, they will be more likely to purchase from you. They will feel well understood and you’re providing them with a solution. - Purchasing power: make sure your target has the money or access to money to afford your offer.
- Easy to target: make sure your target can gather somewhere for you to reach them. Either on social media, events …. The harder it is to reach them, the harder it’ll be for you to sell to them.
- Growing: Picking a growing market will allow you to move faster and picking a declining one will only slow you down.
- Three main markets will always exist because there’s universally a lot of pain when you don’t have them: Health, Wealth and Relationships.
Three levers of success in order of importance: Starving crowd > Offer Strength > Persuasion
- If you’re bad at persuasion and you have a bad offer, you’re still going to make money if you’re crowd is starving.
- If you’re in a normal market and you made an amazing offer, you’ll make money even if you’re bad at persuasion.
- If you pick a bad market and you’re offer isn’t great, you’ll have to exceptional persuader to make it work.
- Commit to niches “riches are in the niches”.
- Stick to what you pick long enough even if you fail. You have to try, identify errors, correct them and try again. Don’t fall into the trap of switching too soon and too often.
- Don’t make this about you. If the offer doesn’t work it doesn’t mean you suck, it means the offer sucks. So change it up.
Charge what it’s worth:
- Price to value discrepancy: “The reason people buy anything is to get a deal. They believe what they are getting (VALUE) is worth more than they are giving in exchange for it (PRICE). The moment the value they receive dips below what they are paying, they stop buying from you.”
- The easiest way to increase the gap between price and value is to decrease the price but it’s also a bad way to do business. The goal of the grand slam offer is to get people to say yes at a higher price by increasing the value significantly.
- Higher prices means higher value: (perceived value in my opinion)
In a blind test, they made people taste the same wine and put different price tags on them from expensive to cheap. And they indeed rated them great to awful proportionally to their price tag
SECTION III: VALUE – CREATE YOUR OFFER
The value equation:
VALUE = (Dream outcome x Perceived likelihood of achievement) / (Time Delay x Effort & Sacrifice
More value means that the elements at the top need to increase and those at the bottom need to decrease.
- Dream outcome: What will I make?
- Perceived likelihood of achievement: how will I know it will happen?
- Time delay: How long will it take?
- Effort & Sacrifice: What is expected from me?
- The best strategy is to focus on reducing the bottom to zero that’s what most big companies do to create infinite value.
- “Most people naturally try and solve problems using logical solutions. But the logical solutions have usually been tried … because they are logical (it’s what everyone would try and do). As business owners and entrepreneurs I increasingly approach problems to find psychological solutions, rather than logical ones. Because if there were logical solutions, it probably would have already been solved thereby eliminating the problem. All that’s left are the psychological problems”
Example:
- Logical solution: “make elevators faster”
- Psychological solutions: “Add floor-to-ceiling mirrors so people are distracted staring at themselves”
- Always try to implement small wins for the client. This way you reduce their “time delay” perception and reassure them that they are on the right track.
- Fast always beats free. People pay for speed.
Value offer: the thought process
- Convergent & Divergent Thinking:
- When we have a problem to solve with a set of variables and conditions, we tend to think that there’s one single right solution => Convergent thinking
- Divergent thinking is coming up with different solutions to the same problem that are all right.
- We’re used to the convergent thinking in school and it takes deliberate practice to think in a divergent way which is what life in general requires
Creating Grand Slam Offer part 1: problems and solutions:
- Step1: Identify the dream outcome
We do not sell people the product we sell them the results.
- Step2: List problems
List all the things someone has to do before and after purchasing your product and service. And think of reasons they wouldn’t be able to do it or keep doing it.
- Step 3: Solutions
1- transform the problems you listed before into solutions
2- Name these solutions
Creating Grand Slam Offer part 2: Trim & Stack:
- Sales to fulfillment continuum:
- The easier it is to sell, the harder it is to fulfill
- The harder it is to sell, the easier it is to fulfill.
- If you lower what you have to do, it increases how hard it is to sell. If you increase what you have to do it’ll be harder to fulfil since there will be more demand on your time but it’ll be easier to sell. The goal is to find the sweet spot.
- Make it easy then make it hard:
Make it easy first to generate demand, get them to say yes, monetize flow, and then introduce friction in the marketing or offer loss for the same price.
Step4: Create the solutions delivery vehicles (The how)
- It’s important to solve every problem you come up with. They become the reason someone doesn’t buy.
- How to think through the solutions (the delivery Cube)
- Level of personal attention: (x to y)
- 1 to 1
- Small group
- 1 to many
- Level of effort expected:
- DIY: Do it yourself. They figure out how to do it on their own
- DWY: Do it with them. You teach them how to do it.
- DFY: Done for them. You do it for them.
- Level of personal attention: (x to y)
- Consumption: the medium you’ll use to deliver it. In person, video, email/text ….
- Speed & Convenience: How quickly you’ll respond? 24/7, once a week ….
- 10x to 1/10th price: if the customers paid you 10x the price what would you provide? Same question if they paid you 1/10th the price?
Step5: Trim and Stack:
- You now have a gigantic list of solutions to provide.
- Determine the cost of providing the solutions.
- Remove the ones that are high-cost and low-value. To be able to determine if something is of high value run it through the value equation.
- You should be left with high cost/low value and high cost/high value solutions.
At the end you must just package the offer and give it a sexier name.
I highly encourage you go through the book to see how Alex illustrates this example with his gym business.
SECTION IV: ENHANCING YOUR OFFER
- When demand increases cut the supply.
- People want what they can’t have. People want what other people have. People desire things only a few have access to.
- Delicate dance of desire:
- Increased demand => Increased unit sales
- Decreased supply => Increased price of those units
- The perfect combo is “lots of demand and very little perceived supply”
- Hormozi law: The longer you delay the ask, the bigger the ask you can make. “The longer the runway, the bigger the plane can take off”
Enhancing the offer: Scarcity
- Scarcity comes from reducing supply. It creates a fear of missing out for the client which makes him act urgently and get your offer.
- The fear of loss is stronger than the desire to gain.
- Three types of scarcity:
- Limited supply of seats/slots (in general for a limited time)
- Limited supply of bonuses
- Never available again
- Physical products: have limited editions (colors, flavours, design, …) For this to work you should always sell out. This way you give social proof that others want it so that next time you use scarcity, they should act fast.
- Services: total business capacity (only excepting X number of clients, X number of clients per week, X number of people per cohort.
Enhancing the offer: Urgency
- Scarcity is a function of quantity. Urgency is a function of time.
- 4 Types of using urgency
- Rolling cohorts: “Starting clients every single Monday. If they don’t sign up now they’ll have to wait for next Monday”
- Rolling seasonal urgency: “New Year/valentines/Christmas promotion ends on XXX day”
- Pricing/Bonus-based urgency: using bonuses or promotions on other services/products for them to purchase the one they’re interested in.
- Exploding: exposing your prospects to opportunities whose value decays with time. The more they delay, the lower the value they’ll get. (ads on a new platform, shares, ..)
Enhancing the offer: Bonuses
- An offer is less valuable than the same offer broken down to its component parts and stacked as bonuses.
- You increase the price to value discrepancy without decreasing the price.
- Always offer bonuses and:
- give them a special name
- explain to the prospects: what it is – how it relates to their issues/how it’ll benefit them – How you discovered it and created it.
- Provide proof that it’s valuable
- Make them imagine their life once they used it
- Always have a price tag on them
- Bonuses should address a specific prospect obstacle
- Checklist and tools are good as they do not require more effort and sacrifice from the client
- You can pair bonuses with:
- Scarcity: only people who by X will get access to the bonus
- Urgency: if you buy today you’ll get the bonus for free
- At an advanced level, you can use other people’s products or services as a bonus. You expose their product/service to your clients for free and you increase the value of your product.
Enhancing the offer: Guarantees
- The risk that the product/service won’t be that good is the biggest objection and guarantees help solve that
- We fear that people will take advantage of the guarantee. Sometimes they do but if you do the math, if you gain more prospects than refunds then it’s a win for you.
- Four types of guarantees:
- Unconditional: you pay first and if they don’t like it, you refund them.
- Conditional: you pay and if they don’t get the results having done X, Y, Z, you refund them. The conditions should be the key actions people must take to succeed.
- Anti-Guarantee: is when you offer no guarantee. If you have a good reason behind it people will be more convinced to take the risk.
- Implied Guarantee: performance-based guarantee. If you perform X, you’ll get the bonus.
- For B2C businesses with lower tickets, the broader the guarantee, the better. The higher the ticket and more B2B it is where you want to add more conditions.
Enhancing the offer: Naming
- Over time, offers fatigue and a good way to revive them is to rename them.
- MAGIC framework for naming
- M: Magnet: Reason why “free, 20% off” it should answer why is the offer valuable to the client
- A: Avatar: your prospect/clients: “Doctors, CEOs, Moms, …”
- G: Goal: You announce the dream outcome
- I: Interval: the time it’ll take them to get the results
- C: Container: what is the offer “challenge, product, experience, ….”
- Try to find time to rhythm. It sticks to people’s minds
- Use alliterations: make all the words start with the same letter of sound
