Businesses That Churn Customers Can't Grow

0:00Hey Alex. >> Yeah, over here. >> I have a fitness and nutrition coaching business, but I think our unique value prop is that it's the values in the community. It's just petite women 5'4" and under, and it's kind >> The most 4' and under? >> Petite women 5'4", like short women. >> Okay. >> What I'm wondering is I'm more interested in building this brand and community. We have >> It's called Itty Bitty >> No, that's [laughter] awesome. It's called Petite Power cuz it has to be >> Someone owns that? Ah, no.

0:27>> That one was taken. >> Yeah. >> Um I'm just wondering if I'm capping my potential by having structuring it as a coaching business. I'm out of fulfillment, I'm out of ops, but there's other products and services we could offer. And I from this workshop, I just get this feeling that coaching businesses are super capped. And so I'm like, how can I think bigger? How can I 10x this beyond, you know, a couple million dollar business? >> I'll I'll I'll I'll put a a a sub caveat underneath that point about like coaching businesses are capped.

0:56Instead of using the word coaching, just see it as a generic service business. And if it's a generic service business, then it's just a generic service business that happens to have, in general, low LTV and low retention. And so it's it's not that coaching businesses are capped, it's that businesses that churn out customers every 6 months can't grow. Like you just have to keep out-marketing all the time in order to grow. Then you have to reload all your customers every 6 months.

1:23That sucks. And then if you're like, oh well, we doubled since last year, it just means you sold twice as many customers. And then you're like, to double this year we have to sell four times as many. Double next year, it's eight times as many. And that's why people can't sustain it. Cuz you need something that stacks. And so I said this yesterday, but I will repeat it because it's so important is that I ruthlessly focus on what is something that I can sell that people will not cancel.

1:48And I just eliminate everything else. That's all I care about. And so of your product offering, it's splitting it up into a splintering it, if you will, into the different components and saying what thing here would people pay annually to be a part of? And then laser focusing on that and then making that the core offer. Because to your point and you can sell the other things, but you want to just factor that So All right.

2:19So fundamentally the issue is you have consumable stuff and then you've got uh recurring sorry, consumable and then one time. Okay, I did this the wrong order so I'm going to say one time. There we go. And then consumable. The issue with the information education space is that they have one time stuff and they try and bill like it's consumable.

2:43So if I say I'm going to teach you math then why am I going to keep paying you for the same arithmetic after I graduate fifth grade? Like there's a reason people graduate from education. They have to move on because you learned it. And so the incremental value of learning math incredibly important the day before you buy learning math. The day after you learn math, there's zero value in a course that teaches you something you already know.

3:08This is the problem. And so what you have to do is think, okay, there's some level of education that I have that's incredibly value valuable but I'm only going to bill one time for that. Because that's how the value is going to be delivered. It's one time that they get the value and it's super valuable. These other things, let's say you said community, right? What else do you give that they use on a regular basis?

3:33>> New workouts. >> Sure. Workouts, okay. >> Meal plans, stuff like that. Accountability. >> Accountability is consumable. All right. So you have these other components that are consumable. The thing is is that this often is priced very differently than this and it's blending the two where people get in trouble. They basically say, "This together is worth $30,000. And so, I'm going to bill you monthly for $2,500 a month." Now, the first month people are stoked because it was, you know, super valuable for that first thing. But month two, now they feel guilty for canceling cuz they got a lot of value. Month three, they're like, "Okay, well, you know, this isn't worth $2,500, even though the first purchase was." And so, it's just better matching the pricing to what the value they're getting when they're getting it.

4:20And so, this is why I'm a big fan of the big head long tail model, which is have you have these components that are one-time purchases. You stack those up front. You make that so that you can pay a sales guy or liquidate acquisition costs. And then you make this thing the stickiest thing you possibly can at probably a significantly lower price. But if you can get this churn down to like 2 to 5% monthly, then this becomes really viable still.

4:45But it's often times at a significantly lower price than most people expect. And this is often at a significantly higher price than people expect. And people just get in trouble being here. Does that check out? >> Yeah, that's exactly what I have. It's like 3K and then 49 a month. >> Oh, great. Wait, 3,000 up front and then 49 a month after that? >> Yeah. >> this. Okay, what's the problem? >> I feel like it relies on me becoming a celebrity. Like we have a couple hundred thousand followers, but unless I just keep getting like bigger and bigger and being the face of it, I I don't know how to keep it going, I guess.

5:18>> Well, yeah. I mean, you have to keep marketing. >> Yeah. >> So, did you want permission to not have to advertise anymore to get the business? >> Maybe. I don't know. >> No, I'm being real. And sometimes like sometimes just confronting that I mean, this is a great model though, by the way. I love this model. Um yeah, I bet you have really low churn here. >> Uh it's like 10%. >> Is it really? Even after the 3K? >> Yeah. >> At 50 Was it 50 a week or 50 a month? >> Uh new new clients each month, 80 right now.

5:44>> Oh, wait. 3,000 up front, and then what's the monthly recurring? >> $49 a month. >> Okay, yeah. So, you have 10% churn on $49 a month after they drop 3K? >> Yes, and we get 55% conversion from the one-time education to the uh continuation membership. >> Weird. I First off, this would just be like That's This is onboarding. So, they should be sold together.

6:11>> What do you mean? >> So, you sell 3K up front to get you going, and then it's 50 bucks a month after that. >> Well, it's a 90-day program first. That's the one-time fee, 90 days. And then into the monthly $49 a month. >> Got it. So, I you you'll get significantly lower churn if you don't have a gap here. >> Like not 90 days? >> Right. >> Oh. >> Sell it as long as you want. Sell it a year. It doesn't matter. Like, it's 3K, and then it's 50 bucks a month after that to maintain everything. So, this is to get you onboarded, and then once you learn everything, you learn how to become a customer, it's significantly cheaper for us to continue to keep you on.

6:42>> Oh. >> That's the reasoning. So, then you won't have this conversion rate drop off. >> Wow. >> It also just the frame of it of like cuz now what happens is this is a second buying loop. And so now they're they're making a second purchase. It's basically you lost the sunk cost fallacy. That's what makes this model good. So, because there's this gap, you're now selling a $50 a month membership where half the people are taking it. And then they're they're appraising the value off a $50 a month purchase. You want them to appraise the $50 a month purchase off the 3K thing, and so they feel stupid canceling 50. I just dropped three grand.

7:17>> Right. >> making them have a second purchase. Does that make sense? >> Yeah. >> This is important. >> Yeah. >> Okay. That'll make you a lot of money. >> Amazing. >> Yeah. If you like this video and you're a business owner who wants to break through your current revenue ceiling, I distilled every lesson from scaling 10 businesses past 10 million and three businesses past 100 million into a completely free scaling road map that I've used to go from zero to one, zero to 10, and zero to 100 plus. And so, you can click here, and you can check it out. Again, absolutely free, and since you're a business owner, I appreciate you, and uh enjoy.