The Game with Alex Hormozi
What To Do When Your Pricing Model Doesn't Match Your Avatar | Ep 865
Mon, 07 Apr 2025
Wanna scale your business? Click here.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned and will learn on his path from $100M to $1B in net worth.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition Mentioned in this episode:Get access to the free $100M Scaling Roadmap at www.acquisition.com/roadmap
Chapter 1: What to do when your pricing model doesn't match your avatar?
It becomes very dissatisfying because your team gets burnt out because they're like, I feel like all we're doing is onboarding new customers all the time. And they're just walking out the back door between three and four months later. And if you're listening to this and being like, oh my God, this is my life.
Chapter 2: Why do businesses struggle to keep customers?
It's probably because the model you have, the services you deliver and the prices that you charge do not match the avatar that you are selling to. Does your model match your avatar? That's what I want to talk about on today's episode of the game. I have been doing these deep dives into kind of like growth sins.
And obviously I talk to a lot of business owners on a regular basis, and there are very common themes that come up for why there might be, let's call it structural difficulties to growing the business.
Chapter 3: How can your model align with your customer avatar?
And there are a lot of different forms of this, but today I want to talk about this one because I think it affects a lot of small businesses, which is that the business has trouble scaling because you sell the wrong type of service to the wrong type of avatar. And this often comes up when you want to do everything for everyone.
And this isn't a, you know, you need to be narrow on your avatar, which I cover at length in other podcasts. But this is more a difficulty with how you deliver times how you price times how many people you have to do it for. All right. So let me let me explain.
Chapter 4: What are the pitfalls of serving the wrong customer type?
So if you have a low-end customer, so let's call it prosumers or small business owners as a customer, for example, that's going to be a VSMB, so very small business owner. And the problem with VSMBs is that they have inherent volatility. Meaning because they are small, they will go up and down on a regular basis. They have good months and bad months.
And on bad months, they will take a real hard look at their expenses, sometimes including your business, and decide to cut. Right. And the same thing happens on the business consumer business. But the issue is that most of these businesses who sell to these customers would be significantly better served. Basically, there's a fork in the road.
Chapter 5: How to determine the right pricing strategy for your service?
So either you sell more templatized, higher volume, more scalable products and services. or you go up market in pricing and avatar to sell more customized solutions. The problem is most people kind of end up somewhere in the middle.
And this is the very painful no man's land where these customers, because you offered customization, but you don't have scalability built into it, end up getting upset with you that they're paying $20 and don't have it entirely custom, whatever it is that you deliver. And so it's like they have unrealistic expectations.
And since you didn't start with, I'll call it a tech first approach, it just makes it a very painful business to run. And every year, the difficulty is that it's very easy to acquire these customers because these customers, there's a lot, you know, boatloads of them. The problem is that they're very hard to keep.
Chapter 6: What can we learn from the Shopify customer retention model?
And so you end up getting into this kind of hamster wheel of getting lots and lots of customers, but then falling out the other side. And you bang your head against the wall because you're like, I need to look at these turn tactics. I need to look at these revenue retention metrics and activation points. And the thing is, is all that stuff is the correct thing to do.
But you might just be missing the big obvious one, which is that these people aren't going to stay. And as tough as that is to hear, it's just the reality of it. And so I'm going to give you two very different examples I've done the right way, and then I'll give you some examples I've done the wrong way. One of the best prosumer businesses or VSMB businesses out there is Shopify, right?
Chapter 7: How can a low-cost service model succeed?
They're considered gold standard for providing a great product for small business owners. But they keep, on average, like 50% at month 12. I have to double check, but it's between 50% and 60%, which is considered best in class. So that means that they lose half of their new customers every year. Now, after that point, they get people to stick, and then it becomes really valuable, right?
But the first year, they lose like half the customers who sign up who are brand new. But they're able to build an entire business around this because it doesn't really cost them that much to add another customer. And this is kind of the problem. So let me, let me give you a services example of this. I'll say an acquaintance of mine had a very large agency, right?
So this is, you know, your standard high touch or I'll put high touch in quotes here, high touch service. a services business, which would be agency work for small businesses, which sounds like a complete nightmare. But here's the thing that he did that was really clever. He figured out that he had to be really low priced. We're talking like $200, $300 a month for services.
Chapter 8: What strategies can mitigate customer churn in small businesses?
Now, most of you might hear that and be like, well, that's impossible to deliver any kind of service there. Aha. And this is where it gets interesting. So what he did was he just looked at what most business owners think they need to do, which is, you know, think Main Street. So they have to optimize their, you know, their Google reviews.
They have to, you know, do a little bit of management, responding to DMs, things like that. It's what I consider a nuisance business, right? It's stuff that a business owner knows they should do, but aren't doing. And you can absolutely sell them on $1,500 a month for that same thing. The problem is they turn out.
And so the question is, how can you deliver or how did he end up delivering those same services for less? Well, he built his entire business around cost so that he could charge a very small amount of money to these businesses. And because of that, they're like, yeah, I mean, if I get one customer a year, two customers a year, this thing pays for itself, right?
And so you want to have such an easy ROI argument that it would be stupid for them to cancel. And so his average stick was like 38 months. That means that call it $300 times 38 months. I don't know what that math is, but 9,000 plus, plus 2,400. So 11, four, right? So $11,400. Now, If you could sell something for $200 a month, you could sell a lot of people at $200 a month.
And if you know that you're making 11,000 plus on each one of these customers, that's a pretty interesting business. Think about it like this. If I wanted to guesstimate how high that business could grow, the question is just how many $200 a month business owners could I sell? Probably a lot.
right like hundreds and hundreds thousands per month and so if you sold a thousand of those small business owners per month and you had a eleven thousand dollar ltv you'd be looking at eleven million a month hundred million dollar plus business right from just from just from doing this but but that that'd be easy to do that's not hard
Now, the vast majority of business owners, though, that sell to SMBs are typically in that $1,000 to $3,500 a month range. And it's because you can sell them there. You just can't keep them there. That's the issue. And so when I said at the beginning, you have basically a fork in the road, right? So either you say, you know what? We're going to do services. We're going to do real work.
And if you do that, then you've got to go upmarket to an avatar that their volatility does not preclude them from affording your services. You have to price to their worst month, and that can be really hard for you from a margins perspective.
which means if you want them to stay you either got to go down market and then make your price so cheap which then means your services need to be absolutely templatized and built for volume and scale with high amounts of tech and huge amounts of operating leverage meaning one rep can manage 300 accounts 500 accounts a thousand accounts
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