5 Ways Your Business Can Beat Inflation

Sometimes the sum of the parts is greater than the whole is basically the lesson there. Especially if some of the parts are super low margin. Isn't that, by the way, what Richard Gere's character did in Pretty Woman?

Yeah.

And like, what is the whole print? Isn't that what he did? He bought companies.

That's what all of the corporate raiders.

Did throughout the 80s. Yeah.

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Hey, everybody.

Welcome to the Business Lunch Podcast.

You have your host today, Ryan Dice. Wonderful to be here, Ryan. What's happening?

I'm good. I'm great. One thing I'm excited about is we got a new feature coming to Business Lunch. Can we talk about that?

Let's do that. Yes, absolutely.

So the whole concept of Business Lunch is this is you getting to essentially listen in on if Roland and I were just sitting down and having lunch and just, hey, so what's going on? What's new in your world? Us talking, you know, publicly almost about the things that we would talk about privately. And similarly, I know there's business lunch episodes where, Roland, you're talking to other smart people, and it's you basically like you're sitting down having lunch. Just mine is having to listen to all the chewing and the biting, which is gross. Nobody wants to. So we took out all the chewing, just the content that you would want if you were eavesdropping in on a lunch. And so what we want to do is we want to invite you, our viewers, our listeners, into the lunch experience by asking a question. So if you go to businesslunchpodcast.com ask businesslunchpodcast.com askask as in ask us a question. You can do just that. You can go to that site, click a link, and you can record a voice memo. All we ask is that you please be concise. You might even want to write out your question ahead of time and just kind of, you know, read it so it's nice and concise. But yeah, ask us a question, we'll play it live and you'll get to participate in the lunch and get your, get your questions answered. It could be about a possible deal. Maybe you want to get Roland's input on a deal that you have going on. Some, some of the possible terms. Maybe you want to talk through, you know, team member issue, scaling issue, really anything. If it's the kind of question. If we were sitting down for lunch, what question would you ask us? Businesslunch.com Ask Ask a Question. We'll try to feature at least one per episode. Should be fun. I'm excited about that.

Yeah, gonna be fun.

Cool, cool.

Interactive ability to join us for lunch. I like it.

Highly, highly interactive. But again, chewing.

What do you think about. We talked last time a little bit and we promised people we would talk about what's going on with inflation, which hit approximately 8.5% last month. That would be March of 22, end of March or end of April? One of those. But we said we're going to talk about it, so we probably should.

Yeah, I mean, and I'll tell you, I'm seeing it. You know, this is one of those things where when I first heard about inflation, I'm like, yeah, yeah, what? So milk goes up a quarter. Like, I don't know how much that's going to affect my life, which I realize, by the way is some pretty like privileged, like, rich person talk. Because there are plenty of people where inflation does truly hit them if you're already on the line. And so I remember thinking like, yeah, this can be a reality, but it's not really going to affect us. Probably be here for a little bit of time. This is oil stuff, whatever. I mean, it seems like it's really here and I'm hearing it more and I'm feeling it. Right. I mean, I'm going and filling up my wife's big SUV and I'm throwing up a little bit in my mouth. And so I know this has got to be the normal everyday consumer. And I know it's got to cause businesses to think a little bit more about what are they investing in. And maybe, you know, is now the time to kind of Tighten up the wallet, so to speak. So yeah, so I just know it's, it's a thing, I guess is what I'm adding the conversation. So you've done a ton of research. I know you put together a lot of ideas for our war room mastermind and just other folks we know. So I'd love to. Can you, if you could just fix all this stuff and make it go away, that'd be great. And I think that's really the promise that you offered on the last episode is that you make inflation go away.

Five point plan guaranteed to work. Yeah. So it works, works every time, 20% of the time. So March 22nd, inflation, 8.4%. That was the highest in over 40 years. Forty years, right. That's, that's a long time. That takes us back to what, the 80s. So that means for all of you that have businesses, you're getting to take home $84,000 or $85,000 less per million dollars that you earn, which you know, you might be like, well yeah, that's nice if you earn a million dollars, but if you're in a half a million, it's still 40 some thousand. If you earn 250, it's 20 some thousand per. I mean that's a lot. And because of the jobless claims going down, they were about 166,000 in the United States back in March. That was the lowest in 50 years. Meaning that labor is costing you more. And we've got it, we've seen it at Digital Marketer. There's people that are switching jobs on the average. People that switch jobs make 12% more. So a 12% instant raise. So those of you who haven't, you know, I would look, people that are asking for raises typically getting about 5% right now. So everything is going up. And I know we see it like everything that we want to do. If you want to buy like as an investment. We've talked for years about getting a plane and now it actually really makes sense for us to. And planes are up like 50%. So forget the staples because we know they're more expensive, we know gas is more expensive. But pretty much everything that you want to do from travel and hotel rooms, we travel a lot. So we see that going up. Alcohol is more expensive. Everything just kind of crazy. So a lot of things that we think about is like, what can we do to, to tame this? And so Ryan, I talked about five things and I kind of want to run them by you. The first one is optimizing your pricing Strategies. And one of the biggest things that, and we test all the time, we just raised on one of our products, we went up $1,000. So it was basically a 33% increase. And we noticed not really any change in the consumption rate or in the conversion rate. So that was kind of an interesting thing. And I think that like for everybody thinking about how do I deal with inflation? Well, pricing is basically the fastest and most effective thing that you can do. And so then you got to ask, should I increase prices? And before you do that, I think you have to say, well, what margin am I working at? Right? What, what's my margin? So if you divide your profits by your sales, that gets you your profit margin effectively. And then you can ask. And this is really, to me, kind of mind blowing. So when you go through this exercise and say, how would a 1% increase in prices impact my profits? Well, if you're, if you find that you're at a high margin, like let's say you're at 30% would be a pretty good margin, then a increase of 1% is going to give you a 3.3% increase in your profit. So that 1% increase in price because it's flow through effectively avoids all of the other expenses that you've got. And assuming that you convert the same, you're going to have 3.3% increase in profits. If you have a lower margin, like you're at 15%, then that 1% increase in prices will be a 6.7% increase in profit. So that to me was like, that's a, that's a huge deal, right?

So I think, well, now you, you can, right? I think there's two things at play here, because raise your prices. Like we tell people to raise their prices all the time. We tell ourselves to raise our prices all the time. I, you know this Roland freak out about the idea of raising prices. I'm like, if we raise our prices at all, everybody, 100% of everybody will stop buying. Like that's the logical conclusion.

It is. That's why this is so shocking, is because that's the logical conclusion, right?

No, but I mean, you do. Like I'm one of those people who, I am always, I always feel like if we raise our prices, people are going to stop buying and they're all going to be mad at me right now. I'm going to acknowledge something that's totally. But I know, I feel it and I know other people do. If there was ever a time though, where you would have essentially the moral high ground to raise your prices now, is it because everybody else is? And maybe you have to. I mean, that's one thing that's really interesting. If you've got cost of goods sold, there's a good chance that you have to raise your prices just to stay in business. Like, you gotta. But if nothing else, look, people are getting kind of habituated to this reality that, yes, stuff's just more expensive. And so if ever there was a time to have the courage and confidence to raise your prices, I think now is it. So that's the first thing.

Think about the impact of that, that like, of not raising prices. Because when you said, like, maybe you have to.

So if.

If inflation is up 8.4, 8.5%, depending on which study you read, and you're operating at an 8% margin, you're kind of screwed, right? You've got, as you said, you've got to raise prices. So here's what's cool. And this is something that hopefully makes you feel better, too. Ryan, is like, let's say that you're operating at a 25% margin, which would be a healthy margin. So if you're at a lower margin, it's even more impactful. But at 8.4%, basically, you would really only have to increase Your prices by 2.1% to make up that difference and be even. Okay? So, like, the math on it is, is basically, if we know that at 25%, a 1% increase in prices equals a 4% increase in profits, then we divide inflation, which let's say it's 8.4% by that 4% increase in profits. That's for 1%. That means we'd have to do 2.1 times that or a total price increase of 2.1%. So here's where that, to me gets really, really interesting, is, so basically, if our current average product price is $100 and we increase it 2.1% means the product price went from $100 to $102 and 10 cents. But that $2.10 price increase improves our profits by 8.4%.

That's kind of crazy.

So then it's like, well, do I feel bad about raising it a couple of bucks?

Yeah. Well, and also, the whole thing is wrong. And this is me pointing a finger back at myself. The whole thing is wrong because, you know, the value delivered, right? I mean, price is not some moral construct, right? If you are asking for more money than you are, you know, delivering in return, that's wrong. Right? We should always be delivering an order of magnitude, ideally more than what we are requesting. So delivering a 10x value over what we're requesting. And so if you're doing that, then yeah, like raise your prices. And I think this is an opportunity because you're talking about little price increases and that's good. Now's an opportunity to do something big. It really is. I mean, you know, you said let's raise them 30% to kind of that next tranche. Like, so if you're normally at 1995, why not just test 29.95 and see what happens? Or, you know, that's pretty significant because everybody's used to it and see it not only as an opportunity to reclaim some of that lost margin, see it as an opportunity to take the additional margin you've gained over and above what you had formerly lost to perhaps deliver even more value. Yeah, I know that's for us, we want to invest more in our customers, so.

And most businesses don't think about raising prices either. That's the other interesting thing, I think. I think it's more top of mind right now. But when we acquire businesses, very often we find people that haven't raised prices in years and years. And so taking this out to a 10% price increase just to get you guys excited about kind of what this can do for you and a 15% profit margin business, a 10% increase in prices is a 67% increase in profits. At 20%, it's a 50%. If you're at a 20% margin and you increase your prices by 10%, it's a 50% increase in profits. So like it's big. That's a big deal to your profits because. Because price, price increases generally go straight to the bottom line. And so the other thing, Ryan, would be, what about lowering prices? What do you think about that? Is that something we should do?

Maybe get more, make it up volume? So I do think there are opportunities in. I mean, one of the things that I can say anytime you have a market downturn or when people do get nervous about it, I think what you do is you flee to the extremes. And so I would not lower the price of existing items. But what you may test doing is introducing a new very low price item to try to get all the different customers. And that's its own kind of discussion. But I'll tell you, the only way that I would even think about lowering my prices during this time is, is if you knew that you had gobs and gobs of margin and you were going to make a big kind of marketing statement out of it. Hey, while everybody else is raising their prices, we're lowering them. But I'll tell you, that's risky because one, if I'm your customer, I'm wondering, why didn't you do that before? And two, you know, you just cut your margins down so much thinner than your competition. I mean, you just better have a pretty significant moat. So I would, I would be very, if you're going to do it, make a big deal out of it. I see benefit whatsoever in just lowering your prices and not telling anybody. Like, yeah, well, but, but let's say.

You do it and, and you tell everybody. Here's to me. The, the interesting thing on the math of it is that it has the inverse relationship too. So if you, let's say that you have a 5% decrease in your prices, you're going to take your $100 product and now it's $95 or your thousand dollar product, now it's 950. That's going to reduce your profits pretty dramatically. If you're at a 15% margin, your profits get cut 33%. If you're at a 25% margin, your profits get cut 20%. So what that means is like at a 15% margin, a 5% price cut would have to generate 33% more sales. Like you'd have to get a third more sales than you've got just to absorb and break even on a 5% price cut. And that almost.

So it's hard for me to keep those numbers in my head. But what I basically heard is it's incredibly stupid to lower your prices during this time.

Pretty tough, right?

I mean, the joke is like, you'll make it up in volume. Boy, you better, you better. Because it's such a bigger hit to your actual profit margin. Just a tiny, like this is just a, this is a knife that cuts both ways. All the stuff that you said, little increases yield really big margin bumps. You know, the inverse of that is also true if you lower your prices. So boy, if you're going to do it, you better know your numbers and you better know for a fact that this price decrease is going to get me like double, triple, quadruple the number of customers I was getting before.

Yeah. And so if you are saying, well, I know that's all logical and math and stuff, but math is not, you know, an exact science. And so I'm not comfortable with that. Well, here's some other things that you could do, right? You can, instead of changing your price, you can replace your price and so what does that mean? Well, there's several things that you could do.

Wait, Roland, before we get to that. Yeah. You know what we should do? Speaking of price, we should show some love to the folks who make this show happen. Why don't we pause and say thanks to some of our awesome sponsors.

I like it. Let's do that. We want to say especially thanks to the next thing that you hear. So there you go. We are back and we're going to talk about what can you do if you're uncomfortable raising prices.

Ryan here. And look, if you're an entrepreneur, you're busy, right? Whether it's replying to emails or scheduling meetings, whatever, there is a lot of work and a lot of hats that we need to wear as entrepreneurs. And that's why, as entrepreneurs, especially if you're a visionary founder, you need help, right? And I don't know about you, but at one point for me, I was getting so overwhelmed with all the little day to day tasks that, face it, they gotta get done, but they don't necessarily need to get done by you. And so when I came to this realization, I said, I gotta get help. I need to get a virtual assistant. I gotta get a social media manager. And that's when I called my friends at Belay Solutions. Belay Solutions are an incredible organization. Now, look, I don't know about you, but I tried to work with VAs in the past. It was always a disaster. And so I was really, really suspicious of being able to make it work. But their process was fantastic. They found out the type of work, work that I need done, the type of people I like to work with, and they really did match me with a perfect virtual executive assistant. And this person's been with me now for three years and counting. So obviously it worked for me and I think it's going to work for you. So here's what you need to do. All right? The good folks at Belay, they're actually giving listeners to this podcast $300 off the startup cost for their virtual assistants. You'll pay less than I did. Here's what you need to do. Text lunch. All right? Text lunch. L U n c h to 55123. Again, that's text LUNCH to 55123 to talk to Belay about getting a virtual assistant of your own. You need it. You know you do. And they can make it happen to replace prices.

And this will be fun for us to riff on a little bit. One of the things that you could do is, and this is Basically saying, so I'm going to basically obliterate the pricing model that I had. So we were selling this thing for X. I'm not going to raise it or lower it. I'm just going to do the whole pricing differently. So then we're not able to compare apples to oranges. So, for example, a move to subscription. So a great thing that we talk about is subscription. Right. Adobe switched from packaged software to subscriptions. They were doing $4 billion in sales. Four years later, they were doing, I think it was $16 billion in sales. They went from a $743 million profit to a $6 billion profit and a $22 billion market valuation to a 205 billion. And all they really did was they said, our Creative Suite is no longer going to be sold individually as a package software. We're going to just basically completely replace the pricing. So you can't really compare. I mean, actually it ends up being more favorable in terms of the customer, usually. But even if it was a price increase, let's say you were selling it for $1,200, but now it's $200 a month. That would be a doubling of price. But because it's replacing the price model, it is less. Less what? Intense. The price change. It's just. It doesn't feel as bad.

Yeah, it doesn't feel like a price increase. It's just something different. Yeah, exactly. Yeah. I mean, it's like automobile companies. You're not just offering to decrease the price of the car, even offer financing. It's. This is a lease.

Yes. Right.

So it's a completely different function of pricing. And just so I'm clear, you offered five ways that you're fixing. Roland Frazier here on business launch, fixing inflation way number one was price increase. Is this number two just on. For those keeping track.

Still talking about prices.

Holy crap. Okay, so we're still talking about. We're still in number one.

We are, yeah. Because this is why you're able to.

Guarantee that it's fixing inflation.

Yes, yes, exactly. So the other one. Yeah, I got you now refocusing price attention. So instead of the price of this thing, is this. Then what if you price it per month or per credit, like give them a number of credits or it's per use or this is for access, and then there's a per unit of consumption or something like that. That would be another option. And we do that with some of our software that we have. We have an access fee and then you get a certain number of credits and then if you go through those credits and for the access fee, then the users that use more can pay more. And ultimately we found that that was more profitable for us. Or you can reprice to performance, you can say, hey, we're going to stand behind what we say that we can accomplish. And so if you're willing to do that, then that's a way to do it too, right?

Yeah, no, I think that's. And you see that more. Anything to reduce the upfront. I mean all those kind of fill in the category of reducing the upfront risk quote unquote and commitment by the consumer. But having a bigger payday on the other side for the, for the company, which may be something to keep in mind in the season when prices are going up. How do we charge less but make more?

Right, right. That's the whole thing. And not offend our customers in the process. Right. So that we don't lose them all. So.

Right.

Number two would be adjusting the product and customer mix. So basically focusing your acquisition budget, the amount that you're able to spend and the work that you're doing to get these customers in, refocusing that on the highest margin products and customers. And that sounds like common sense, but a lot of people don't ever take the time to do that. So you should think about eliminating or restructuring to be profitable your lowest margin products and customers. And if you look at those actually you almost always find some opportunities and I'll give you.

Can I give an example of that?

I was gonna say, can you think of a time we've done that?

Yeah, I do. I mean at one of our, one of our portfolio companies. So digital marketer trains people to be marketers. Right. And kind of the groups there within that, like the, the different groups we have, there's individuals who just want to uplevel their skills. They either want to break into marketing or they just want to get better for their own purposes. There's, there's agencies and consultants who want to be certified and you know, work with us or maybe train their own teams. And then there are kind of the CEOs and the CMOs who specifically want to have their team members trained and up leveled. That group, by the way, we've largely ignored because we were doing it was so effective. And there was this just big swath of individuals who wanted to learn more about marketing. But an individual is only going to be able to invest so much in themselves, whereas a business, they may be able to invest more in a team member because especially right now I would much Rather invest in this person who I think is an up and comer. I'm going to invest in a training for them and for their career so I can keep them and retain them as opposed to them leaving knowing I got to hire somebody worse for 20, 25% more. And so we shifted the focus there and one of the most successful new promotions that we've done is the Head of Marketing bootcamp and the Head of Marketing Boot Camp at Digital Marketer. It is all around business. Basically train your future head of marketing, become a head of marketing, or train somebody on your team so that they can step into the head of marketing role. And what we've seen since this inflation kicked in, there's been more of the second group companies investing to have their people trained than people investing in themselves. And so our messaging is pivoting to that as well, because you got a group there that has a very real significant reason for wanting to invest in their people. So that's a great. I didn't think about it that way. What I love about both of the things you've mentioned, I'm sure 3, 4 and 5 are going to follow a similar theme. These are all things we should be doing anyway, right?

Yeah, always.

These are like. That's kind of the beautiful thing about these. Like anytime you have a challenge out there in the world. We saw the same thing happen with the COVID 19 pandemic. Right. So many efficiencies and so many amazing breakthroughs. And pivot was kind of the. The word of the year for 2020 came out of that time because people had to. And here, for better or worse, we got another opportunity to do it.

Yeah. And even if they didn't have to, it made them think about like it kind of was a reset. Right. So that. So things are going along and we just tend to do the things that we're doing, especially if they're working and we're doing fine and we're busy. We all have that whirlwind of stuff that's going on and so we don't think actively about how can we make these things happen. So I like it for that reason as well. The third one is to rethink your value ladder. And this would be in particular, can you start higher? We've gone kind of the gamut of lower prices and you can sell more stuff, but we know that you have to sell a whole lot more stuff to make that up. So one thing that you could also do is say, well, I'm just going to start. I'm going to look at my value ladder of all the products and services that I offer and say how do I start higher with my initial offer to be higher up the value ladder and then downsell as needed. And so this would mean that you would think about kind of creating or adding lower cost to you, lower cost to you, meaning higher margin products and services. So I'm going to give a few examples and we can talk about some of the ones that we've done. And then this was really kind of funny because I gave this talk, as you mentioned at War Room a month ago or so and last week I met with somebody that actually had really taken action on that and they had dramatically reduced their low end product offering. And I know we tried this too, so I want to talk about that a minute also. But things that don't cost you a lot, that are very high margin, that, that are higher up the value ladder, any kind of automation that you can offer to help people get things done. Ryan, you talked about it years ago. Speed and automation is the best upsell, but it also can be the best sell. Right. That I can charge more for that. And what's cool is if you automate things. As Naval Ravikant said, you know, software doesn't ever get sick, it doesn't ever ask for a raise, it doesn't ever not show up for work. It's just does its thing. So the ability to help people automate can be great. And also once you get past that initial cost of the automating, it is effectively costless.

It's an annuity.

Yeah, one on one coaching or product setup can be a big deal. Whether that's tech support that you offer or onboarding or white glove service that that's really good done for you, done with you, where you're actually helping them accomplish the result that they want again. And that would be an opportunity to mix that with one of the first strategies we talked about which would be performance based pricing. You can do download insurance, extended coaching, extended memberships, extended warranties. If you've got products, group coaching, because you only have one coach, you have to take care of live event tickets. We give away a lot of live event tickets to our best buyers and then they come to events, they get drawn deeper into the community and they end up buying significantly more, giving people longer access or upgrades, masterminds, user groups, any kind of SaaS, enhancements or upgrades that you can do, tech support and training packages, those would all be things that don't cost a lot, that allow you to start higher Now, a cautionary tale. If you want to tell the tale of our attempt with sales to start higher, you want to share that or.

What are your thoughts? Well, I mean, you still need to make sure that what you're selling is congruent with the needs and kind of what got them there. And so, yeah, I mean, we definitely had a theory, a belief around some folks who were in our sales team at the time that that now is the time we really need to start high and go low. Right. Because one thing, and I'll say we've always taught that, and certainly a digital marketer, don't propose marriage on the first date. Right. In general, you want to go on a date and then another date, and then you date a little bit longer and then you pop the question. And so the marketing process, the sales process should look more like romance, right, where you're romancing them a little bit further. And I do still believe that to be true. I think there's nuance, you know, here. I think there's a lot more romance happening between consumers and businesses than the business even realize. Like, the consumers are doing a lot more dating with us by looking at our stuff that we're not necessarily privy to, you know, so they show up sometimes. I think what you started talking about is we can propose marriage on what seems like a first date for us because it's not a first date for our customers. That being said, cautionary tale, when we tried to do this, the offer that was created, the big ticket, let's get married offer, was completely incongruent to all the messaging that got people there. So it's not merely a thing of like, let's sell them something big and expensive. Right? What we're talking about here is the same result. Whatever the desired end result that they want, just sell them the best version of that that'll get them there the fastest. So historically, what we would do is we would say, we'll teach you how to do this thing, or there's this course or there's this tool and there's something that will help you to get that result. And then the upsell was some kind of speed and automation. We'll do it for you. We'll get help. You get the result. We'll consult, you know, whatever. I think what we're talking about now is just flip that. Start at the tip, tip top. If they're not ready, you can, you can sell them down. The difference is the cautionary tale. Again, just make sure that whatever you're offering that's at the tip, tip top is the same desired end result. You can't just put promise a more expensive thing that doesn't relate at all to what they came in on.

And I'm just going to say so we were basically, we have a company called Scalable and Scalable was offering training on how to automate your business with an operating system. And the mistake that we made was when somebody would respond saying, yeah, I'm interested in the operating system. We would say how about this $30,000 mastermind? And they'd be like, but I wanted the operating system, the operating system. So it's like if you were having.

This is more expensive, but ours is more expensive and that would really be better for us.

It's good for us. Yeah, that's what I was going to say.

It'd really be good for us.

I mean I know this doesn't have anything like I know you're looking at operating system, but consider this fava bean futures.

Yeah, yeah. So it can't merely be more expensive. It still needs to align with and by the way, there was a way to make that and we're going back now and reworking it. There's a way to make that as the deliverable while still promising. You know, there's two ways that you can do this. You can just have the operating system training or we've got this mastermind where for the first 60, 90 days we're going to work with you actively to get your operating system installed. And then through the mastermind we're going to help you optimize it.

Right.

Okay. Now we're talking about the same thing. Yeah, but that's not what we did.

So that was a couple of, so a couple of successful examples is getting people in the door. We have a training that's the epic challenge. And so the epic challenge is a five day challenge. It only costs $55 to come in to get this basically $2,000 course effectively delivered over five days plus a bonus day and has a very specific promise. And then rather than going to. And so now you've done the challenge. Come into our $495 course, we go straight to a 4000 or 7000 DOL and that converts very, very well and has for 20 different times that we've presented it.

And, and it's because it's what they want, but more. Right. I mean so the course will teach you. Here's generally how to go and look for a possible acquisition target. Here's learning how to do it. But what does everybody want? Everybody Wants access. They want access to you, they want access to our attorneys. They want all the other stuff that would normally have been in the quote unquote, bigger package. And what I think we don't realize is that because some people just want it all, they're not interested in a part of it. So that belief that, well, I'll offer them a piece and then if they want that, I'll give them the whole. It's like, you know, steering wheel's for sale. You want to buy a steering wheel? Who wants a steering wheel? People like, yeah, because once I sell them the steering wheel, I'll sell them the rest of the car. Because if they want a steering wheel, they want a car. It's like they want a freaking car.

Right?

All right, sell them the car and just get them in car.

So offer the complete. I mean, I guess the ultimate moral is offer them the most complete package that you have that's relevant to what they want. And then if that's too much for them, you can say, oh, well, if you don't need the, you know, turbo injected engine feature, then if you got.

Your own attorney, if you got this, like, you know, other people, you can, you can kind of pick and choose. But I do think that's always been true. But I think now especially we have to do that. Like just some of the economics of business don't work if you're not getting more folks to come in at the, at the higher level.

Yeah. Okay, so number four is create profit optimized offers. What is that? It means basically what are the offers that are really optimized to deliver the greatest profit to you? So good examples would be bundles. Can you. I've got one. But can you think of a bundle offer, Ryan, that that basically has a high perceived value, low cost item that gets bundled with something else that's being sold to help improve?

Yeah, we had a war room member years and years ago who they had an E commerce store that was all NFL licensed merchandise. Right. And so if somebody's a Jets fan, they want to get like the big foam number one finger with like the jets logo on it. Well, that's a pretty low margin item because the NFL and because the jets, they're getting royalties. And so it was cutting into his margins. And so the solution was, well, let's create a bundle. And you know, if somebody's a true jets fan, yeah, they want like the individual. But if you create a bundle that's like the man, the ultimate man cave bundle, and included in this is a professional Photograph of the jets football stadium that you either license it or you hire an aerial photographer to go out there and just take it. You know, take a picture then, then you can own that. And now what's the margin on a picture that you took? Well, it's pretty close to 100%. Right. And you could charge extra for the framing and all that other stuff. And so basically all of the margin was in the other kind of team related stuff that wasn't. That didn't involve the logo. Yeah, you don't necessarily need somebody's permission to take a picture of a building. Right. So those were the kinds of things that you can add to it. There was this shaving company that like the razor blades and everything were. Were expensive and lower margin, but they had a package where they would bundle like a little cup and a brush and soap where the margins were infinite. Right. But it looked really big and impressive and they charged like triple for it. Yeah, it was all margin.

Exactly. So that's a great strategy. The other is the opposite of that would be unbundling. And this is where you're taking something that's already bundled and being sold. But the truly the. That's a discount opportunity. But you have high demand for the individual pieces. And so there was a private client who was basically the whole thing she does is she goes in and acquires companies that have product suites, unbundles the product suite and did it for law firms where they basically they would acquire a thing that was like legal billing and case management and expert testimony and document production and blah blah, blah, and then unbundle all of that and sell the individual parts for significantly more. And so now they actual the increased price of these unbundled parts, which were already a sunk cost because they already existed. Like it wasn't any development required. It was just unbundling them created significant huge value. And then she sells the company for a ton of money, which is really, really cool.

Sometimes the sum of the parts is greater than the whole is basically the lesson there. Especially if some of the parts are super low margin in that, by the way, what Richard Gere's character did in Pretty Woman. Yeah, the whole print. Isn't that what he did? He bought.

That's what all of the corporate raiders.

Did throughout the 80s.

Yeah, that's funny. Yeah. So the evil bad guy Richard Gere, before Julia Roberts turned him good. Yes, did that. So that's the only downside to that strategy. Is your bad Richard Gere, well, he.

Unbundled companies and fired people. So you know this is actually good for the company because you're just doing it with a product. You're not.

You're unbundling low margin product lines, which may or may not mean, yes, letting some people go. But hey, I'll tell you, if you got to let people go, great job market to do it in anyway, that. I don't know why that made me think of that. So go ahead. Rolling.

The other would be use sensitivity. So here's an interesting thing, is that, like, if you're concerned like you are, Ryan, about price sensitivity in the market for your stuff, and you're like, I don't want to appear bad because I don't want to change the price. Well, the other thing you could do is know that most people are far more price sensitive than they are quality sensitive or quantity sensitive. So if you've ever bought a bag of Doritos, Elon Musk, I think, said this recently. He said the next acquisition after Twitter is going to be Doritos, and he's going to fill the bags all the way full because you open a bag of Doritos or chips or anything, they call it Shrinkflation.

Yeah, yeah.

And they literally call it Shrinkflation.

We're going to charge the same. There's just less in it. Your tube, look at like your toothpaste tubes that you bought kind of. I don't know if you got toothpaste from a couple months ago, but there's literally less in everything. But they're charging the same shrinkflation. So that's what you're talking about.

Yeah. And what's cool about it is that your customers generally are not as quantity sensitive as they are price sensitive. And they might also be less quality sensitive. I know that Snapple is a great example of this Snapple and had on the label it said triple filtered water. And then not long after that it was filtered water. And then not long after that it was like water. And I think it was going towards sewage before they lost their market. But it was funny to watch happen because it happens all the time. And it happens at restaurants. You go into a restaurant that's just opened and you're like, man, that was some of the best stuff. And they gave us this and this. And then gradually the accountants come in and they're like, what if we got, you know, lower this? Now, I'm not suggesting that you rip people off the way I feel that all of those people are, but it is possible to say, you know, for us to be able to offer the same thing that we're going to offer now maybe Instead of a 30 day supply, we offer 28 days or something like that. Worth exploring.

Well, I know. And sometimes depending on this doesn't apply for all businesses, but sometimes you find that by offering less, people appreciate it. Because before it was more than they needed, more than they could consume, and it almost made them feel guilty. So we used to do weekly calls at one of our companies. Like there was a new call every single week. And what we realized is this is a lot. They don't need this much. You know, what if we do it every other week? What if we just do once a month?

We would do four of our mastermind meetings.

That's where I was going next.

That's too many.

Yeah, yeah, we had four mastermind meetings a year, one a quarter, and we're like, oh, that sounds good. Well, God dang. These are also really expensive because we up leveled, started doing them at nicer places and they came too fast.

You'd be like, man, we're gonna switch to three. Didn't we just.

Yeah. And everybody's like, this is way better. Three is way better. Like three is way better. And same price. But we were now able to take a lot of that margin. Well, some of it, let's be honest, went in our pockets, but a bigger chunk of it went to make those three better. And so sometimes it's not just let's do less so that we can make more margin. Sometimes it's let's do less so the less can be better, which is going to equal an overall better experience. And look, if there's some margin left over after delivering a better experience, then great. So yeah, we're not necessarily saying that you just limit the number of chips in the bag. The charge the same, but more air. But can you do less but better?

You can. Some things you can do that with, which would be my next thing that actually just redefines the value proposition. And you give less and charge more.

But people love it.

Because a great example that Richard Lindner brought up to me when we were talking about this was the 100 calorie snack packs that cost more than the full product. But they kind of give you what you want, which is, I don't want to be able to eat 700 calories worth of stuff. I just want 100. And its price per ounce or unit in there is way higher. So the profit is crazy higher. Or just actually locating Coca Colas at the checkout in the supermarket, the price per ounce of the cold Coke that is in the refrigerator as you're checking out, that you're going to grab and drink versus walking back down the aisle to where they've got Coke in cans and bottles that are not cold is almost six times the per ounce cost.

So.

And you could say that's a rip off, but for me, like, what am I paying for? I'm paying for the convenience. I'm paying for the fact that it's cold. I'm paying for the fact that it's there. The fact that it's 6x is irrelevant to me in that moment. And same thing, you know, if what I really want, you got to understand this is where in these times, especially understanding what do your people actually want? Because in the good times, in the high margin, high flying times, it's let's give more, more and more. They don't always want more. We found out our war room members were happy to have three meetings a year instead of four because it gave them the same result, but more time to actually get their work done, more time to hang out with their family. We found that at Digital Marketer, they were happy to go from a workshop a week to a workshop a month because what they wanted was not us to sling as much information at them, but to distill it down to what's the one thing that actually matters Now I want the result. I don't just want the content. And same thing. I'm not eating these chips because I just want to maximize my chip intake. I mean these chips, because I want a snack that's not going to make me get all the fat right at once. And so I will pay more because I realize that I've got some willpower issues. So please put it in a smaller bag. I'll happily pay more because it's all I want. So yeah, I think it's a great thing. Don't necessarily bring your own personal biases to this and don't assume that more is always better. Sometimes less is more. So all great things to keep in mind, especially now that it is financially not just advantageous, but might be financially essential. So can you give a quick recap of what were the five things? Again, go ahead and eliminate.

I'm going to do the fifth one now.

And okay, see, that's why I want to recap, because I forget. All right, number five coming at you.

The fifth one, final one is to acquire up and down the value chain. So basically, if you are outsourcing content or you're selling something through affiliates and giving them percentages of what the Total value in this experience is for the customer. You can recapture that. It's basically something that we refer to in business as vertical integration, which is acquire your suppliers and your suppliers. If you're not a manufacturer, you still have suppliers. Maybe you've outsourced customer service or maybe you've outsourced sales or content creation or marketing spend to an agency. There's lots of lots and lots of things that are in the value chain that you might not think are taking away. But all those businesses have to make their own profits and they're probably all thinking about raising their prices too. So if you can acquire them or bring them in house, or acquire them and bring them in house, then that's the ability to recapture that profit margin, which is its own way of dealing with inflation. And same thing on the downline. Maybe you're paying 10, 20, 30, 50, 60% to affiliates to sell your products. If you acquire that affiliate, it pays for itself pretty quickly. So the five, to summarize, because I know we're running out of time, is optimizing your pricing strategies, is number one, two is adjusting your product and customer mix, focusing on high margin, low cost things. Three is rethinking your value ladder. How can you basically start higher up the chain and then down sell into it? Four was creating profit optimized offers. That's the bundling, unbundling, all that kind of stuff. And then the last one five was to acquire up and down value chain. So I think if you do some combination of those things, it's hard not to be actually way ahead of the inflation that we focusing on right now.

And let's say inflation comes back down, you know, international conflicts, smooth out oil prices. Because so much of this is driven frankly by oil. Right.

And supply chain, everything.

Supply chain, yep. Oil supply chain, consumers.

Maybe China lets all their people work again, you know?

Right. I mean, all of these things are pretty extraordinary and they're all happening kind of at the same time. So there's reason to believe that many aspects of inflation are going to come down. So let's say you do half of these things, only some of them work a little bit. They help you out in this tough time and become massive, massive margin increasers when things, quote, unquote, go back to normal. So if nothing else, I think the theme of this is all this stuff we should have been doing all along. Now we got to. So let's be thankful for these moments when we're kind of forced to think about the things we should have been thinking about all along. So awesome stuff man. Great stuff.

Agree. Yeah, great, great, great lunch conversation. Thank you guys for all being here. Remember to go to business lunchpodcast.com ask if you would like to record yourself and get on the program. Have lunch with Ryan and me. Also, if you are enjoying this we would love it if you would tell all your friends and you would subscribe so that you don't miss any of the issues and releases, especially the one that you might be having lunch with us on. That's it for today. We will see you next time.

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