Speaker A
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.
Learn how pricing decisions impacted a business, revealing why raising prices with value can boost profit while lowering prices often reduces it.
Key Takeaways
- Raising prices with added value can increase profits even if some customers leave.
- Lowering prices often reduces profit due to unchanged churn and increased overhead.
- Increasing customer lifetime value can be achieved through multiple strategies beyond pricing.
- Belief in your product or service enhances sales effectiveness and business success.
- Price reductions should be approached cautiously, as they typically hurt long-term profitability.
What the video covers
- The speaker shares two major pricing decisions from his business experience—one that increased profits and one that caused significant losses.
- Initially, he raised gym boot camp prices from $99 to $299/month, offering a higher-value semi-private program, which doubled revenue despite losing one-third of customers.
- Later, he lowered prices from $42,000/year to about $31,000/year to reduce churn, but churn remained unchanged and profit dropped by $5 million annually.
- Lowering prices increased overhead costs and reduced top-line revenue, resulting in a substantial profit loss.
- Raising prices with added value can reduce customer count but increase overall profit by lowering fulfillment costs and increasing revenue per customer.
- The speaker emphasizes that lowering prices usually leads to less profit, especially in service-based businesses.
- He outlines six ways to increase customer lifetime value (LTV): increase price, decrease costs, resales, upsells, cross-sells, and downsells.
- The speaker advises caution when considering price changes and stresses the importance of selling products or services you truly believe in.
- He shares a personal lesson that most businesses lose money by lowering prices, even if the intention is to increase customer retention.
- The video concludes with a motivational note encouraging viewers to avoid common pricing mistakes and focus on value-driven pricing strategies.
Chapters
- 00:00Introduction and first pricing decision
- 00:33Belief in product and pricing conviction
- 01:06Second pricing decision overview
- 01:40Challenges with lowering prices
- 02:14Customer reactions and churn impact
- 02:55Financial consequences of price changes
- 04:13Successful price increase story
- 05:37Lessons learned and LTV strategies
- 07:24Final advice and conclusion
Full Transcript — Download SRT & Markdown
Speaker A
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. I got really fed up at one point, and I was like, I don't think I'm helping
Speaker A
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
Speaker A
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 personal transformation in terms of body-wise. And so I was so convicted about our semi-
Speaker A
private program because clients were getting way better results there that I wanted to switch all my clients over to 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
Speaker A
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
Speaker A
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 selling our
Speaker A
program at 42,000 per year. All right? At the time, and that was being billed at 800 bucks a week, roughly. All right? And I wanted to decrease our churn, and so I was trying to figure
Speaker A
out a way to decrease our churn so we could extend, you know, increase our lifetime value per customer. And I kept, you know, all my team and all that stuff, they're like, we have to lower our price, we have to lower our
Speaker A
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.
Speaker A
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
Speaker A
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, this huge pitch. I stacked it and stacked it and
Speaker A
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.
Speaker A
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
Speaker A
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
Speaker A
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
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in overhead to my business so that I could add for 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
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combination, so I increased my cost by 1 million dollars and I decreased 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
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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
Speaker A
but then 2x LTV. I'll take that trade every time, right? Aha. But that's not what happened. Turns stayed the same, and I just lost 25 percent of top line, which if we were running a 50 margin business, right, I just lost half my profit, which
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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
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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
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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,
Speaker A
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
Speaker A
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
Speaker A
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
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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
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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,
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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 makes you sick to think about it. And if you're contemplating what should I do with my prices because I
Speaker A
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,
Speaker A
upsells: get them to buy more of the stuff they're currently buying, cross-sells: get them to buy different things, downsells: 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
Speaker A
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
Speaker A
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
Speaker A
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
Speaker A
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.
Speaker A
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
Speaker A
this kind of change, you're not going to get two extra sales, but y—
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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
Speaker A
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
Speaker A
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
Speaker A
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
Topics:pricing strategybusiness growthcustomer lifetime valueprofit increaseprice increaseprice decreasechurn rateservice businessvalue-based pricingsales tips
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