I Took Alex Hormozi's Advice & Lost $200k

I took Alex Hormozi's advice and lost $200,000 in one month. So a couple weeks ago, I posted a video where I had a one on one call with Alex Hormozi on the Hormozi hotline. And basically I asked him advice on how to grow my business. And since implementing that advice, we went from 500k in August to 300k in September. But here's the thing. It wasn't because the advice was bad or wrong. It was simply because of how we executed on the advice. So I, so I'm making this video to break down. One, what his advice was, two, how he took action on the advice, and three, the lessons that I learned from implementing the advice incorrectly. So you can avoid making the same mistake because ultimately what he told me to do was actually the right thing. But if you implement it the way that me and my business partner did, you're going to have a bad time. So without any further ado, let's dive in. All right, so to give you a little bit of context on my business, I own an AI marketing agency, right? Where basically we help financial professionals implement AI and lead generation into their business. And so when I jumped on the call, we were doing $500,000 a month with a short term goal of scaling to a million dollars a month. Our long term goal is to build a billion dollar lead generation business that implements AI. So that's our long term goal, but short term we want to get to a million dollars a month. And basically we kind of outlined to Hermosi, like, here's essentially what we're facing. Like we're trying to increase LTV of our customers so we can get to the next level. So we essentially have, you know, this is kind of how most businesses break out is you have like your 20% that are your bad customers, right? These are people that ultimately typically don't get great results. They complain, they refund, whatever, right? You're not getting 20% refunds, but it's 20% that is like all of your problems. And then you have your 60% that's kind of like in the middle. They get good results though, you know, they're, they're kind of like your average kind of customer, right? And then your top 20% are like your best customers. These are the people that are your case studies giving you referrals, staying, retaining, et cetera. And so essentially we kind of explained that we had this situation and he's like, cool. So what you should do is you should do the 80, 20 analysis. The 20% of customers are getting you 80% of your results. And then start targeting and going after that 20%. Right. So then your business starts to look like this. So then the average customer becomes your bottom 20%. You cut off the bad customers and then, you know, the majority of your clients become this 20%. And then you start attracting a new, higher level of customers, which becomes your next 20%. You can you continue laddering up your business. Right now, the thing is about the industry that we're in. We serve insurance agents, and every five years, 92% of the market refreshes insurance. So we basically have this structural churn that's kind of built into our business. Right. At least for the majority of of insurance agents that are in the industry. They come in through like an MLM recruiting model. And so it's basically like a biz op in a lot of senses. Like you get a lot of people coming in constantly. There's not like a super stable base of customers. At least that's not the majority of the market. There's a small percentage. So that's kind of like what we came to him explaining what our business was doing. 500 came on wanting it to a million a month. So our lifetime value was around $9,028. We do around 50 units per month. And essentially Alex said that in order to hit a million a month, we need our LTV to be 20k on average. Right. So the way he's getting that is if you do 50 units per month, that's the sales velocity. Which sales velocity is just how many units you sell per month? Well, if our sales velocity is 50, if you multiply sales velocity by the LTV, that is what is referred to as the hypothetical max of what your business can get to. Right. Because if I sell 50 units a month and on average over $20,000, eventually I'm going to get to a million a month. So there's two ways that you can increase. Get there. We could either sell more units, or we could increase the LTV from 9K to 20K. And so here's essentially what Alex's advice was. He's like, cool, so we need to increase ltv. That's kind of the direction that he went as opposed to just increasing units. He was saying sell less units, increase ltv. So essentially what he said is test the price raise and I'll link the video. You can go back and rewatch it if you haven't watched it already. But essentially our price was 15k for three months. They recommended to raise it to 25k for three months is what Layla said.

So from 15k to 15k to 25k.

They also said that in order to boost the LTV, we needed to renew clients earlier and improve our backend offers. So basically what we were really doing before is like we would wait until they were up for renewal or like a week away from renewal or like very close to renewal, oftentimes even past their renewal if I'm being real. And then we would have our client success managers try to sell them and renew them, which was not going well. So they were saying sell them yourself or have your business partner who's the one who's selling on the back end for us and try to renew them earlier and create better offers. So we took some stuff from money models and essentially implemented that. And then the last piece was really just focusing on attracting better clients to increase ltv. So the example Alex gave was with gym launch. What they did is they realized that their best customers had at least 30 members, had a signed lease and were a gym owner. So they only went after and only accept those people. And so essentially he was saying like, cool, do that 8020 analysis on your business, figure out who is the 20% and then start marketing towards them. Adjust your messaging to go after them. Right now that sounds like a great idea. Right? Makes tons of sense. Here's essentially what we did. So we raised the prices. We had a 8k for 3 month offer and a 15k for 3 month offer. We raised it to 12k and 20k for 4 months. So we essentially just. It's kind of a price raise. This offer, the price was raised this offer. We just extended the timeline from 15k to 20k. But it's four months now instead of three. Right. So we kind of like try to meet in the middle. And then what we did is we had this base that was getting us all of our clients. But you know, ultimately it was getting us the average client that maybe couldn't sell as well or had issues with different things or was newer to the business. And so our ads before were really targeting those people. So what we did is we said, cool, we're going to stop creating new ads going after that current avatar. So let's call them Avatar A. Right? Avatar A would be like this 60%, this 60% in the middle here. Right. So we said, cool, we're going to stop creating ads going after Avatar A and it's. And we're only going to make new ads going after Avatar B. Right. So essentially what we did is instead of going after insurance agents, we started going after people that are like financial advisors and people that sell like a more advanced type of insurance than the current market we were going after. So we said we're not going to make any more ads going after Avatar A, only going to make new ads going after Avatar B. It's not like we shut off the current ads, which is didn't make any new stuff. Right. So hopefully that makes sense. And then as the ads would fall out of KPI, then we would obviously kill them, which you can see here. Right. So we were going to shift all of our messaging to get a different customer and see how it played out. Right. We also started making more early renewal and upsell offers. So before it kind of looked like this, you know, they would jump on the onboarding call, we might try to upgrade them or renew them, and then we would wait until the 90 days and then renew them. Right. What we are now doing is we're making more offers consistently throughout the entire program. So, you know, obviously the more offers you make, the more you're going to get yeses. So we just increase the frequency of of asks and offers that we make today.

Okay. Now maybe watching this, you're like, those things all sound like they would work. Why did that not work? I will explain why. So here's what happened. Week one.

We basically said, hey, we're raising the price. This is the last chance to get in 15K. And we had a record high week in cash collected, as you can see right here. So we did 114k cash collected solely on the front end, just on foreign cash, which is awesome. Week 2, $17,390 cash collected front end, which was a record low week.

Week three, $67,000 cash collected front end. And then week four, $11,901 cash collected front end. So we basically went from in August doing $499,000 to in September, we finished about 300 and $336,365.55. So not quite 200k but about $200,000 that we went down. Now, to be clear, it was not Alex's advice that was wrong, it was my implementation of the advice. Okay. Make that abundantly clear. Right. So let me explain what I did wrong and how you can avoid making the same mistake. So here's how I messed up. Number one, I did not test it. Okay? So if you go back and I think this is very important for people to realize and think about, there's something called the scientific method, you probably remember it from grade school or whatever. We used to have this thing when I was in elementary school called science fair. My mom always did my projects for me because I didn't want to do it. But basically, I do remember the concept. And essentially what you do is you observe what's going on. You create a hypothesis of what you think will happen. You run an experiment, then you analyze the data. Hey, did this work? Was my hypothesis correct or was it incorrect? If your hypothesis was incorrect, then you go and form a new hypothesis and you do another test. If it was correct, you implement it and you take action on it. We didn't do that. This is what we did. We got advice from Hormozi, and then we just shifted our whole business and did total inaction. What we should have done is test a price raise. We should have tested a price raise. And so what we've done now is we've essentially, we define if we're going to do a test. In order to do any test, we have to define, okay, what is what. What is our hypothesis? What do we think is going to happen?

How much budget are we going to allocate to this test? Or how much time, how much resources are we going to allocate to this test? And how long are we giving the test? Right. You have to test things. We didn't test the price raise. We just raised the price. And what's wild is it wasn't until we jumped on a coaching call with another mastermind, Ren, and they were like, because our close rate just plummeted when we raised the price. And they were like, hey, what did. Did you raise your price or something? Like, what changed? Yeah, yeah, we raised our price. It's like, well, that's probably why your close rate dropped. And then we bumped the price back to where it was before, and the close rate's right back where. Where it was. So the only reason a price raise makes sense is if you make more money from the price raise. Right. So we raise the price, but the. The drop in close rate is outweighed by the increase in cash, increase in revenue. Then it would make sense to. To raise the price. In this case, it didn't. But what we did is we just raised it, said, hey, this is a new price. Moving on, move forward. We should have tested it. Okay, so that's the first thing. So whenever you make a change, what's the hypothesis? How much resources are you going to give it? How long are you going to run the experiment? And then what does success look like you have to define that before because otherwise you get emotionally attached to your test. The next thing we fucked up the base. So this is a concept that I think the first place I heard it was from Josh Snow, he's the founder of Snow Teeth Whitening. They're like a multi nine figure oral care brand in the E comm space and we pay him for coaching. And so he essentially talked about this concept called don't fuck up the base. So when you have something that's working right, like we all have like our current business or if you know, let's say you're in a job for example, because I feel like that's the easiest way to understand this concept is like if you had a job and you were trying to start a business, well, you wouldn't just quit your job. When you don't have the business working, you keep the base. Keep the base and then you start doing something and then when it works, then you go all in on that. Right? Don't mess up the base. So we did is we essentially, you know, I give this analogy here of like the Roman Empire didn't burn Rome to the ground to go conquer other areas, right? So we went after, we went after a market that was not just the top percentage of our customers. We went too far out of what we were currently doing and then we stopped doing what was working. Which when you're smaller, like if I had like a 50k a month business, you know, okay, cool, I can get away with like being a little more aggressive in that. But when you have something that, that's stable, you have like, you have know, 30, 40 employees, you can't just like kill what's working to go do something that, that might work. Because if it doesn't work, then you're kind of like really screwed. And that's basically what we did, you know, like the Roman Empire didn't burn Rome to the ground to go conquer Egypt, that would be pretty stupid. So what we should have done is we should have stuck to like the 8020 principle. So we have all of the what's working that's proven. Right. And yes, with what's working and what's proven, we could iterate on it and test new hooks and better messaging that dials more into the current avatar we want. And then we could also, hey, let's say also we want to go after these financial advisors. Cool. We can also have like a little test of doing that as opposed to just like throwing everything towards that, which is what we did. This is what we did, right? We had what's proven, and then we spent like 50% of our budget on tests, which was. You mean duh, right? This is what we should have done in the first circle, right? So if something's working, keep 80 to 20%, 80 to 90% of it the same, and use 10 to 20% for tests, right? That's. That's the biggest thing. Even when it's advice from your business mentor, you should still do that, right? If you have something that's working, it's working, test it. Don't just change it. Next thing, too many variables at once. So.

One, we raised the price. Two, we changed our avatar. Three, we're always hiring and, you know, offboarding closers. So it's like we have new closers coming on that are now having to validate all these new different things. We also tested a new offer as well, a pay per show deployment offer. And then we also had like a new sales process because we were selling to new people. So there's like so many things going on at once. And we just basically like had tons of chaos going on within the business. No one really, like, it wasn't anything stable. And that's why we have this instability. So when you test too many things at once, you're not going to have any idea what actually worked and what didn't, which is what happened to us. We were like, why are sales in the toilet? Is it like. We didn't even consider that it could have been the price raise, which is crazy. We thought it was like, okay, maybe the closers aren't closing. Maybe the avatar is off. Whatever. We didn't even think about the price raise because we had so many variables going. We didn't define our tests. So then we ended up going back to the original prices. Sales came right back to normal. Right. So when you. The next thing too is when you do an 8020 analysis of your customer, you want to make small tweaks and adjustments. Okay. So for example, I'll use the analogy of like, we have this little boat right here, right? So let's say this black line is the current course I'm going on. Well, cool. If I make a small, slight tweak, right? I just, I. I optimize around the best percentage of the customers I'm currently getting. That's good. It's a small, slight tweak. I might go from here to here, and this might get me closer to my goal. What we did is we said, okay, who are we currently going after? And we went too far. Away from what was currently working to what we thought would be the, the next best avatar. So we went from here to here, but the problem is like, we didn't know what, what was in the water over here. You know what I mean? So instead you want to make small course, small adjustments in your trajectory as opposed to just totally pivoting and switching. Especially as you have a bigger business and you start to have a, and you have like a validated offer and something that's working. The more you change, the more fluctuations you're going to have. So when you make drastic changes, you want to do them a small percentage, right? So here's what we're doing now. We're continuing to double down on what's proven to work for us, and we're testing small iterative changes on our marketing and messaging to attract the higher quality clients. So we're still doing the 8020 analysis, which in all reality, we didn't really do an 8020 analysis before we did. Who do we want to go after? Who do we think would be a better customer? Let's go after them. And that's what I think screwed us. Uh, so we are actually doing, we're, we're, we're taking Hormozy's advice as it actually was meant to be taken now. So we're doing smaller iterative changes. So for example, let's say I was, I always use the lawyer example in a lot of my videos because it's easy to understand. Let's say I was going after lawyers and I found out like, here's basically what we did. Let's say we were only selling the personal injury lawyers. And then we said, oh, I think divorce lawyers are going to be a better market. And then we stopped making new ads for personal injury lawyers and just went all in on divorce lawyers. That's basically what we did. What we should have done is go, cool. We have all these personal injury lawyers, the best ones come to us already doing 5 million a year or more. So then let's just take our messaging and say, hey, if you're a personal injury lawyer doing 5 mil a year or more, and then that becomes your, your market. Um, that's what we're doing now. The last piece is just continuing to focus on our backend offer and a referral program to boost ltv. So we rolled out a whole referral initiative to our current customers. And then we're also making more offers on the back end and just dialing that in to make it better and better and better. So that's essentially what we did. Those are the mistakes that I made, and hopefully you got value from this video. And if you want to see the original call that I had with Hormozi, you can click right here and watch it. See you there.