How to Make More Profit Than 99% of Businesses | Spotify Video Exclusive
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What is the main topic discussed in this episode?
If you want to make more profit than 99% of businesses, you need to nail pricing. Optimizing pricing has a six times stronger increase on profitability than getting more customers and two times stronger increase of profitability than decreasing churn or getting people to buy more times. And it is the strongest way for businesses to make more money. In this video, I will walk you through, on each page that I turn, a new concept that you can apply to your business that will make it more profitable via pricing.
How does pricing optimization affect business profitability?
If you don't know who I am, my name is Alex Ramosi. I own Acquisition.com. It's a portfolio of companies that's over $200 million a year. These videos are to help you show what we do to grow our portfolio so that you can make lots of money and then maybe someday we can invest in your company. Otherwise, enjoy. I take a weekly call with school communities in the school group. I had three or four guys who asked me questions that I was like, these are not ... like Alex questions, these are math questions that you can just simply solve by doing math. And so it's like, should I do this price or this price? It's like, well, what's the conversion rate of this one versus this one? And then what's LTV on this one, right?
It's just, you just solve the math problem. And I think a lot of businesses are not using math to solve their problems. And with pricing being one of the largest levers for making money, not one of it is the largest compared to getting more customers, uh, how many times people buy, and pricing. Pricing is still a three times stronger lever on profit versus the other two. So let's talk about five concepts of pricing that will make you more money. All right, so the first one is something that I like to call the price to value discrepancy. All right, and so if we imagine here as the value, this little first red line, this is the value that the person gets. This is our price assuming that our price doesn't change over time.
Now, if our price doesn't change and the value does, when will people cancel? here when the price and the value are matched or when it's underneath. And this is our sad face as business owners because we're like, oh my God, I thought that I was making all this money. And so the thing is, is that there's a third line here that is probably worth understanding. And this is our cost line. So ideally, you want your cost to be here, your price to be here. So this is your profit. And then over here, this is your something called customer surplus, which is just a fancy word of saying goodwill or the value that people are getting net of the price. Right. So ideally, you have really high value. You've got a price that's still high relative to your cost basis as a business owner.
And so this is the fundamentals of pricing in a visual. One of the things that I see as a mistake is how does this occur? How do we go from having lots of value to not having lots of value? Well, let me explain. So with one-time value versus consumable value, which is I like to think about it, so the reason that you have those big discrepancies is that usually you don't understand the value that you are delivering to a customer. Meaning, if I say, hey, let me give you this course on you know, building websites, whatever, right? Then as soon as you learn how to build websites, the value of that chorus drops to zero. You already have the skill. Like, the day before, you needed to learn how to do arithmetic.
Arithmetic's super valuable. The day after you learn it, it has zero additional value. Now, that doesn't detract from what the initial value was. It just no longer has value. And so... what most business owners should do but don't do, so this is me telling you that you might want to think about this, is differentiating the value that you have in your business between one-time and consumable or recurring value. All right? So let me explain. So let's say I, let's use that example of the websites. So my little course, right, on website building is something that would be one-time value.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–0:30
2
How does pricing optimization affect business profitability?
0:30–6:27
3
What are the five concepts of pricing to increase revenue?
6:27–6:52
4
How does the price-to-value discrepancy influence customer retention?
6:52–10:24
5
What is the difference between one-time and consumable value?
10:24–31:46