The first product you must sell in a new business...

In this video, I'm going to talk to you about one of the questions that I get most frequently and that 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 called, like an accommodating buying curve. And so what that basically means is at every rung, 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 spend, 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, 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. They feel like they're spinning the wheels all day. Their team completely has no idea which way they're going. They change things all the time, et cetera. 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 1 to 10 million, all right? 0 to 1 million. You sell one product or 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 1 to, you know, 1 to 3ish million and you're trying to go to 10, 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 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, alright? 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 upfront 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 $5,000 down and $99 a month after that. How much more sticky would it be? Significantly more sticky. Now the beauty is, if you have one of these upfront type payments, you can also use that to liquidate your ad costs, cover your commissions for the salesperson, cover the upfront fulfillment and 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 mentor person, whatever advice who told them that they should have three products and they should have a low, a medium and a high product. And then based on 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're 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 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 great. Right. Simply having one thing that solves all the problems. And then based on the customer's budget, we can decrease how they pay. All right, so hear me out. So let's say that we want to do a, 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 20% higher. And then finally you might have a, have a, have a, you know, a 6 pay or whatever over that period of time. So 1, 2, 3, 6. 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 usually they 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 up. 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, and the salesperson 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, 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 unsold. 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, and if we have done or we have 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 $1,000 a month or $100 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 brushstroke of statements for most entrepreneurs who are not very good at operating their businesses or operations is not their strong suit and are below $3 million a year. All right, so anyways, Mozi Nation, there's a lot of people who are broke. I don't want you to be one of them, which is why I make these videos. Keep being awesome. I love you, and I'll see you guys in the next bit. Bye.