How to Sell High Ticket Offers to the Right Customers | Ep 938

0:02You aren't making as much money as you want because you don't know how to get it from the people who've got it. My name is Alex Hormozi. I run a portfolio of companies at Acquisition.com that journaled over$250 million per year. I did a book launch 12 weeks ago that did$106 million in sales in a weekend and broke a Guinness World Record for the fastest selling nonfiction book of all time. In this video, I'm going to explain a core shift in my understanding of how getting money actually works and why the rich do in fact get richer. and I'm going to show you the math behind it and most importantly how you can gain access to it.

0:35The first reason that you aren't making as much as you want is because you're selling to people who don't have the money to give you. So think about it like this and this is really important. Imagine this pyramid as a representation of earning in the United States. So all the earnings, so this would probably be 40 % of earning, okay? 40%, that's a lot. What percentage of the people do you think earn 40 % of the income? The top 10 % earn 40 % of the income in the entire US. Now that's income and that's pretty extreme, but it's not even close to the difference when you look at wealth. So US household net worth, okay, this is the value of their assets.

1:17last year was$163 trillion. And you're like, man, how am I going to pay rent? I'm like, let's get some of that$163 trillion. So I want you to imagine that you had$100. Okay. So I'm going to equate this$163 trillion is now$100. Okay. And we're going to spread it out relative to how it actually is spread within the United States. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10.

2:001, 2, 3, 4. 1, 2, 3, 4. That took a second. So this is 100 people to represent 100 percentiles in terms of net worth in the United States. This$163 trillion, the bottom 50%, how much do you think they would actually have of it? So this bottom 50%, so let's label it, right? Bottom 50, what would they have if there was 100 people to represent this$100? They would have$2.50. I'm just going to use bills because I don't feel like I haven't changed. So$2 out of that$100, the bottom$50. Now, what do you think the next 40 % would earn? Okay, so now we're talking all the way up to the top 90, all right?

2:48They're going to have$20,$25,$28, all right? That's the next 40. Remember, we got$100 distributed here. Now, what about the next 9%, all right? So now we're getting the top 10 % of America. How much do you think they got? They got 20. They got 30. They got 35. Got 38. All right. $38 in just this 9%. Now, you ready for the drum roll? How much do you think the top 1 % has? I mean, it's one-tenth, right? So it can't be more than the other nine. Right? I mean, you'd think that. the top one, just the one guy, would have$32. One guy. You can scroll. Now, this means that this one guy has more than the bottom 90 % combined.

3:53This is very important because it has implications for how you do business. so when you hear me say sell to the rich they pay better it's not some pithy statement it's reality and it takes people a very long time to learn this and people often take years before they actually start to figure this out usually there's belief issues they're like no one else could do this and part of the reason is because everyone they know is poor and they're like there's no way I could sell something for that price and so they make stuff against all the other small businesses to compete for these two dollars think about that for a second you're putting all the resources because you see all these people.

4:27They're the ones that you're brushing shoulders with. They're the ones that you see in the street every single day. And you're trying to compete and slice these$2 a hundred different ways, right? If you want to make money, go where the money is. So let's put this concept on steroids now, all right? And actually apply this to doing business. This is how big companies get big. They go where the money's at. And this is a breakdown of something called Pareto's principle. You might've heard of it, 80-20. It's one of the most powerful concepts in business and most people still don't understand how to actually apply it.

5:00All right, so I want you to freeze this idea in your head. Just look at the money here. $2 here,$28 here,$38 here. Now we're in the top 10%, right? And we have another 32 here. So I said earlier that this one guy is more than the bottom 90. But 69 % of all the wealth is just in these 10 people. if this doesn't change how you do business, you are missing the plot. Okay, so let's translate this. So the idea of 80-20 is that Pareto, who is I think an Italian economist, realized that there was this pattern that existed like 20 % of customers or 80 % of customers. You know, 20 % of customers created 80 % of the revenue.

5:42And you just noticed this 80-20, you know, kind of issue that continued to occur within all different types of data sets. And so that became his principle. Now, Here's where this gets really interesting. So within business, it totally reigns true, where 20 % of your customers will be responsible for 80 % of your profits, right? And then here's where people miss the next point, is that within this 80%,

6:1164 % of the aggregate profit comes from just 4 % of the people in there. Four customers, if you had 100. And then of this 64, 51 % of the profit comes from just the top 1%. Now, doesn't that all of a sudden start to make sense when you look at how the wealth is distributed? That the wealth is distributed in a way that also makes sense that the business would gain its profits in that way, right? And so we repeat this process, and this is kind of power law within business. This is how you do less and make more. And so when we talk about profit, because that's literally the bottom line at the end of the day, profit takes into account the fact that a single person often doesn't cost that much more to handle than the other 99.

7:00So it's more work, but significantly more profitable. Now, this is only true under one very important condition, that you actually have a business model that allows them to pay more. right? If you just only charge$10 for your thing, like this is one of my favorite sayings is the only thing worse than offering a thousand dollar thing to somebody who's got a hundred dollar budget is offering a hundred dollar thing to somebody who's got a thousand dollar budget. In the first scenario, you lose a hundred bucks. In the second, you lose 900. Big difference. And so here's the important thing. If you have a model that allows for that, you have to understand that 99 out of people are not the top 1%, right?

7:40If we're pulling back here, all these people are not the top 1%. So you should expect them to say no to your expensive products and services. But when that whale comes, you should want to Captain Ahab that bitch and get it done. Now, to be clear, this is just one of the principles at just one of the areas in the scaling roadmap, I'm not going to tell you which one it is, where you actually have to reconsider your pricing and your products for your services so that you can generate more profit per person. right? And every business gets stuck at specific points in their journey. And so my team and I put the$100 million scaling roadmap together.

8:15It's a hundred percent free. Just put your information in and it'll show you where you're at and what you need to do next to get the next level of scale. We've done this a lot of times across a lot of different companies. It's my gift to you. Go grab it. Like it's really good. We've 250 ,000 businesses going through it. We have a ton of data to work off of. Like we break it down to product, marketing, sales, customer service, IT, recruiting, HR, and finance, right? What you need to do, what's stopping you from doing it, and how to get through it, all the way through. So it's free, my gift to you, enjoy.

8:46Now let's get back to it. And so the reason I talk about selling to these, the top 1 % is that one of the most effective ways to build a business is from the top down. So what do I mean by that? Like You think about like Tesla, right? We started with a$250 ,000 Roadster and he had a very limited production. Very few people, more profitability per. What then happens? Well, then he was able to make the Model S and that was the next car. And then he made the Model 3 or Model Y, whatever. So he kept working his way down. But what's interesting about this is that when you anchor high, it makes sense.

9:21Think about it from a branding narrative perspective. If I say, hey, I've got this really expensive car. It's amazing. It's super fast. And then I say, hey guys, many of you couldn't afford this. So I made another car that's similar, but more affordable for you. That brand narrative works because you anchor it high. Now think about the reverse. Hey, I'm a budget discounter and I'm going to now sell a really expensive car. It doesn't hit the same, right? And so I love the top-down approach because you have a brand reinforcer, but also from an operational perspective, being able to ship the amount of cars he has to ship for the Model 3 compared to the amount that he had to do for the Roadster, it made more sense to start here because you can handle the volume, right?

9:57You might not have the operations to handle the amount of work that it requires to serve the masses. Like for sure, there is money, right? At the bottom, there is, but you have to be doing it at very small, raised within margins with extraordinary volume. And unless you have the capital to create something that truly scales to that mass, you will probably just end up trying to squeeze the$2 for more than what they're worth. All right. And so how do we actually translate this into pricing our products and services. This is super important. So here's my rule of thumb for upsells, taking to account that 20 % of customers have far more spending power than the ones below.

10:35Now, remember we had$2 here and the next level had 28. So it was 14 times more wealth between just the bottom 50 and the next 40. But just using the Pareto principle in terms of how we can apply this to pricing, like you not understanding this is why your business is not making as much profit as you want. All right. So my rule of thumb is that for every new tier is that you want to 5 to 10x your price and expect 20 % of people to take it. So here's how it works. So let's say that you sell 10 customers. Okay, so you tell 10 customers, let's do it again. Now, if you have eight of these customers at$10 per month, and you've got two of them at$50 per month, how much am I making on these guys?

11:24I'm making$80 per month in total on the bottom 80. And then I'm making a hundred dollars per month on my top 20 % or my top two. And so by serving these two customers differently, we doubled the revenue of the business, which by the way, again, is my rule of thumb. I want each tier to be, to bring me another double, like another full amount of revenue. Otherwise, I'm like, I don't know if it's worth creating the actual extra constraint of operations, right? But here's where it gets even nastier. Let's say that this covers the majority of our overhead. That means that this extra$100 might contribute 10 to 1 compared to this to our bottom line.

12:07And so sometimes when you make a move like this, if you were here and you had$80 and you were living your life on this 80, right? It's like, well, maybe your cost is seven year, you're taking 10 home. If you add this a hundred dollars in, and maybe the cost on this is 20, you've got 80 left over. We five X the profit. So let's say our profit before this was 10 a month. And then we added this in and we had$80 a month in profit from this hundred, right? Look at the difference in profit. We go from 10 to 90 just by adding this tier. And so the reason your business is not making this money and you're not making as much money as you want is because you're not priced appropriately for the people who actually have the money to give you.

12:50And so this is what everyone messes up. They say, hey, this is going to be my three pricing tiers, right? I'm going to have a hundred dollar a month thing, and I'm going to have$129 a month thing, and I'm going to have a hundred and, you know,$39 a month thing. Okay, great. This is all the same price. It's a lot for a normie and just not a lot for everyone in the top 10%. And so to maximize revenue, you can think of it with four tiers of pricing. And to be clear, you don't need to serve everyone. And the first product you have may not be your base tier. All right, so you might start here. I don't know yet.

13:26I don't know your business. But this is what you can walk through in terms of thinking through the pricing for your products and services. So let's assume that we have a thousand customers. All right. $10 per month. And let's say we've got 800 customers at this level. Okay. Now our second tier, we might have a hundred dollars per month. So 10 times that price with 20 % taking it. All right. So that means we're going to get someone in the neighborhood of 200 ish people who would qualify for this tier. Okay. And the next year we still have to follow our rule five to 10 X. So that means we're going to be at 500 to a thousand a month for this next tier.

14:01Just to keep it simple, I'm going to just do 10X because it's nice and clean. All right. And so here we're going to have maybe around 40. Now you're like, wait, I have to wait a thousand customers. This would be 160. I'll redo the math at the end so you can see it. All right. Now our next tier might be again, five to 10 times this. And so we might be somewhere in this five to$10 ,000 a month. All right. And so we'll keep this nice in

14:28times around eight people. Okay. And so if you're looking at this, you're like, holy cow, that's a, those are very big differences in price. Yes. They, they reflect how different the spending power that exists within customers is. All right. And so the main takeaway from this is that if you're going to have an upsell, a very small percentage of people are going to take it. And so you have to make it worth it. And so people will have these, I'll go$100 and$129. It's like, it's the same pitch. It's the same price. The willingness to pay for that customer is the same. And so let me show you how I've actually translated this into my own business.

15:04This, and you can ignore the actual numbers of customers, but what do we have here? Ah, we have school. And then at$100 a month, what else do we have? We have school. This is our hobby plan. This is our pro plan. And so for me, the next number is$5 ,000, which is L1. And what's the next number after that? $35 ,000. Huh. Almost like it's between five to 10 times the price, which is L2. And then what do we have after that? We have something that's$135 ,000. So that's four times the price, right? And this is L3. And what do I have underneath of that? no money because it's a portfolio company. And so the thing is, is it may take some time to build out this entire thing.

15:54I didn't start with school. I started building, you know, you know, our brand. This is to be clear, just our advisory practice that we have at acquisition.com. And so I'm just saying like, knowing this doesn't mean you need to do all of this at once. It takes years and it does take operational chops to pull this off, right? You want to add tiers one at a time. My tip though, is to start as high up as you can on this ladder for a few reasons, right? So the Tesla example I gave earlier, the branding from top down versus bottom up is much stronger. Like Honda making a better car is tough versus Rolls Royce making a Rolls Royce light.

16:27It would be easier play for them from brand position. The next reason is that I prefer to start with the unscalable. Why? Because it's easier to operationalize it serving these people because one, they actually, believe it or not, as a percentage of net worth, this is actually lower than what this is for somebody who's poor, right? If you have$10 million, 100 grand is 1 % of what you've got. If you've got$1 ,000, 100 bucks is 10 % of what you got. And so for you, you will actually be more demanding for that 10 % or that$100, reasonably so, than somebody who's giving 1%. But from a business perspective, the 100 bucks versus the 100 grand, it's a gigantic difference.

17:08So you have an easier customer to deal with that has lower demandingness, but it requires, and to be clear, to get that$100 to equal$100 ,000, is you got to get 1 ,000 of those people. So is serving the one customer for$100 ,000 easier than serving$1 ,000 at$100 ,000 as somebody who used to sell$100 gym memberships? For sure. And if we were to look at this from a profit contribution perspective, like what is actually dropping to the bottom line, it would look like this. all the profit is here just like all the wealth is at the top so you have to do more and charge more for it to people who can afford it and the amount you do for a few people is almost always worth it for the far greater price for those people who are willing to pay it now you might ask well wait a second i thought you said sell the rich like why do you have this ten dollar this hundred dollar a month thing the only way to serve the poor masses right And I say this to be a little bit more like, you know, jarring, but to serve people with lower budgets is to have tons of money and then find a way to serve them in an automated manner at a low price.

18:13And if you do that, you can also make a lot of money, but via volume. But it takes a lot of money. It takes a lot of time. And the reason that Tesla has almost gone bankrupt multiple times is because it's incredibly hard. The reason most software companies like Netflix and Spotify and some of these big consumer companies who charge$13 to give you... Think about how hard that is. Think about how hard that business is. They have to make world-class entertainment for all the different genres that someone might like just to earn their$13, right? Just to earn the equivalent of like a Chipotle bowl.

18:47Again, I bring this up because some people come in saying, oh, I'm going to do that. It's like, you're going to do that bootstrapped? No, these companies that you're looking to model literally got artificially inflated with outside capital to prop the business up until it would get to the point where it actually could make money. So to do something like this costs a fortune. And so the way that I'm trying to walk you through this is that 80 % of businesses in the US, or 78, are service-based businesses. And so you don't have an automated way to serve these masses. You likely don't. And so if you don't have an automated way, then you wanna go in the complete other direction, which is I wanna serve the best customer at the highest possible price, but people misprice their products and services.

19:26They say, okay, my current core thing is$1 ,000. I'll make the next thing$1 ,500. It doesn't work that way. That's not how the buyer works. The buyer is at 5K, 10K from the 1K thing. That's the next tier. That's the next rung on the ladder, all right? And so this hopefully should shift your perspective in terms of how pricing really works. A disproportionate amount of profit is here. We have to make gigantic jumps with the assumption that very small percentages are gonna take it, but still be okay with it because even a small number of people at a gigantic price is still a lot of money. So how do you actually translate this and put this into practice?

20:01Number one, stop selling from your own wallet, especially for one of the people who, you know, you're in that$2 category, right? You're that bottom 50 % right now. I get it. I've been there. You have to forever imagine, this is a gift, forever imagine that everyone is rich. So here's the reality that will shock you. That top 10%, top 10 % of Americans have a million dollar plus net worth. One in 10 people, one in 10 people, million dollar net worth. They've got the money. You just aren't selling them something that they want. And you might even be, and this happens a lot, especially for newer business owners, you might even be too cheap for them to even believe that you're good.

20:37Like we had a company that, uh, that was in the health space a while back and looking at all the research, it was a doctor and all this stuff. And I just fundamentally believe that they were mispriced. And so what I did was I raised, I wanted to raise the price by double. You fought me back and forth forever. And I was able to finally get a 50 % price race through. But guess what happened? We raised the price by 50%. That's a lot. What do you think it did to the close rates? They went up. They were so cheap compared to the promise and what they were delivering that people didn't even believe that it worked.

21:14And so some of you guys are so cheap because you're selling out of your own wallet. You're selling based on what your friends and family who might also be in that$2 bottom 50 % are telling you. But why would you listen to people who don't have money on how to get money? They don't know where it is. They don't know how to get it. And more specifically, they don't know how to serve the people who've got it. So that's the first thing. The second thing is that if you're going to do this, listen to me on this. Whatever your upsell is, 5 to 10x the price. And then just make sure it's something that you'd be happy to deliver for five to 10 times the price.

21:48Sometimes I'll get pushback from people who are like, oh, that would, that would be so much work. And I'm like, cool. We have value and we have price. Move one of them. Either do less or charge more. I would encourage you to just charge more. Right? And so if I were to say, hey, I want you to 10 times the current price of your upsell, what would you do that would absolutely blow people away? How much does that actually cost you? When you look at the cost compared to that 10 times bigger price with a zero on the end of whatever your core offer is, you might find it's like, actually, it's only like, you know, 5 % of that price.

22:20It's like, right, really high margin. So as long as you're happy making more money, serving fewer people, go do that. The third one is that you should expect only one in five or one in 10 people to say yes, expect more no's. And this is the sweet spot of making money, right? The sweet spot isn't the most yeses, it's the most money. And that is never with the most yeses. So if you pitch your 10 times bigger price to this bottom 50%, none of them are going to say yes. And you're going to mistakenly believe that this is a bad idea. But the reality is that you're just not talking to the people who have the money.

22:56And so you should expect that if you have a representative amount of people that you speak with, one in 10, maybe even one in a hundred is the person who is the correct avatar. And for that person, you might also find, they'll just say like, yeah, that sounds good. You'll be like, oh my God. And I only say this as somebody who's had it happen for the first time. I'm like, I can't even believe this is possible. I can't believe this person would give me this much money. It's because to them, it's not that much money. It's only that much money to you because you still live here. If you sell to rich people long enough, they will make you one of them.

23:23And so with your upsell, make it crazy. And this is called an anchor for a reason, right? If no one buys it, no big deal. Or most don't, no big deal. But the good news is that it'll still help you sell the rest of everyone else at a higher percentage and even at a higher rate because it'll look like a good deal in comparison. And I said this before, but I'll say this again. The next reason is the only thing worse than selling a thousand dollar thing to a hundred dollar buyer is selling a hundred dollar thing to a thousand dollar buyer. In the first, you lose a hundred bucks. In the second, you lose 900.

23:56And not only that, that 900 is probably disproportionately profit. And this is what no one understands. This is why most businesses don't make money. They just try and sell to these people who are the biggest pain in the butt. And the thing is, is you see so many of them that you're like, oh, this must be how it works. No, it's not how it works. It's just how you're working. This is how the average business works, which is why the average business doesn't make money. They don't go to where the money's at. The next reason is you have to think about absolute profit rather than relative profit, and you'll be blown away.

24:24A single person paying $10 ,000 for something that costs$2 ,000, a single person, right, one, right, buying a$10 ,000 thing that costs$2 ,000 is the same as 400 people buying a$50 thing that costs$25. These are the same. So do not underestimate the power of large prices in small quantities. And so the reason that entrepreneurship is such almost like a spiritual journey is that you you earn the right to charge more because you no longer think the smaller amount of money is worth your time. The reason that rich people get richer is less because there's some magic behind anything, but there's only two real forces, in my opinion, that make the rich get richer.

25:16The first is math, which is that compounding is a thing. When you have a billion dollars, next year it's 1.1 billion if you do nothing. A hundred million dollars is made because the assets went up. Very difficult to outwork compounding over a longer period of time. That's a reality. And as that capital aggregates, which it does in capitalism, which is a system for allocating capital, that's the point of capitalism, is that it will always shift to the people who are the best at allocating it. And so in time, if everybody starts at even, on enough generations, eventually the capital pulls. It's how all capitalism has worked out since the dawn of time.