How to Price a Service Business So It Actually Makes Money | Ep 1002

The Game with Alex Hormozi

Alex Hormozi consults Joey Goone, owner of Utopia Experience, to transform his event planning business from arbitrary pricing to a scalable

Key takeaways

• Implement a dynamic pricing generator that targets 5x to 10x the true cost of delivery.
• Use 'price lock guarantees' and prepayment discounts to secure cash flow and limit scope creep.

Main topics

• Pricing Strategy
• Sales Motion Optimization

Notable quotes

Once we fix the thing we're selling, we'll fix how we're selling it.

Conclusion

The episode provides a tactical roadmap for service businesses to move

Transcript preview

Speaker 1 (0:00) I'm going to help a complete stranger build a $5 million per year business in 90 days, step by step. And at the end of the 90 days, we're going to check in and show you exactly what happened. This is Joey. Enjoy. Speaker 2 (0:09) Joey, what's up? Speaker 1 (0:11) All Speaker 2 (0:11) right. Tell me about the business. Yes. So my name is Joey Goon. My business is Utopia Experience. We are an event planning company out of St. Louis, Missouri. Speaker 1 (0:20) Fail or fail, I am with 400 of my closest friends. Speaker 2 (0:28) So last year, the average deal size for event planning was $34,000. This year, trailing 12 months is $44,000. Audio-visual average spend is between $20,000 and $150,000 per event. Video production is more of a pass-through to just make it easy for clients. Speaker 1 (0:41) Got it. Okay. What's holding you back right now? Speaker 2 (0:43) I'm just not really sure what the strategy is that we should pursue when it comes to the acquisition channel. Speaker 1 (0:47) So why do you think this can scale? That's a great question. Speaker 2 (0:51) I'm just like in awe. I love you so much. Speaker 1 (0:54) It's mutual, man. Speaker 2 (0:57) Why do I think this can scale? So before I came here, I actually flew here from my sister's wedding in Mexico. I asked 100 people on that trip with us. It's like the entire wedding party. What's one thing in your life that you can never have enough of? And I thought I'd get some silly answers because people are drunk, doing whatever in the pool. And I thought I was going to get sex or money. And I got some of that. But mostly what people told me was some version of connection, community, tribe, family, belonging. And that's the industry that we're in. So our industry, what we're selling is fundamentally what people need. It is a human need. It's wired into our primal DNA. And so that's why I think it could scale. And the market cap on events right now is 1.5 trillion. It's projected to hit 3.5 trillion by 2033. Amazing. Speaker 1 (1:43) So Speaker 2 (1:43) those numbers back Speaker 1 (1:44) up Speaker 2 (1:45) our industry. I'm so convicted on my quest that I'm going to persevere. I've been resilient since I was a nine-year-old kid. I know this business is going to grow with your help. I'm ready to scale it. Speaker 1 (1:58) Sweet. Walk me through how your pricing process works because it's very, it's very like make-believe, right? Yeah. Yeah. So abstract. Yeah. So yeah. And since you have a margin issue, I think it's a margin issue. How does, how do these numbers get pulled out of Thinner? Because right now it sounds like they just say we want X, Y, and Z, and then you create some line items and then make up numbers on those line items and then come up with a number at the bottom and then send it to them. Like I come to you and I say, I'm doing an acquisition.com event, right? We're going to do a thousand person event here in Vegas and we want full AV and some onsite support. What goes, like when you hear that, what actually goes through your head? Speaker 2 (2:35) What's included in every package is a $15,000 or overall retainer to retain our services. Okay. So that's the first thing. Speaker 1 (2:41) Like a one-time upfront fee that gets added on to the other make-believe prices. Exactly. And Speaker 2 (2:47) then after that, it's, you know, sponsor management. That's about 15K. Then there's vendor management. Vendor management is like managing all the contractors. Speaker 1 (2:56) So it's Speaker 2 (2:57) the photo booth, the video production team, all of those elements that, you know, sort of come into the event. It's the venue procurement strategy. So if you guys, if you're taking your team to some other place outside of Vegas, you need a hotel, Speaker 1 (3:10) which Speaker 2 (3:11) hotel are you going to work with? How are you going to get people to and from the airport? And so you'll Speaker 1 (3:14) bill for the logistics of managing that as well, if it's part of the scope of work or whatever. Right. That's 7 Speaker 2 (3:20) ,500. Is there anything about headcount? That's the thing. So we learned the lesson, we put the guardrails up. And so now we're actually deploying like tiered structures where if you have over a certain number of attendees or over a certain amount of vendors or sponsors, then there's a tier that where you pay more based on the number of people that you have. Speaker 1 (3:37) Got it. Okay. I Speaker 2 (3:38) think I know what to do. So Speaker 1 (3:40) you want to hop on the side? Sure. Speaker 1 (3:46) So there's a demand gen issue for sure, but I think that part of it is because you're mispriced. And so the pricing has to do with the offer. And so we kind of have to start with the offer and then fix price and then go sales motion and then go demand increase. Does that make sense? Got it. Okay. We've got to fix the thing we're selling. Once we fix the thing we're selling, we'll fix how we're selling it. And then... If we're selling it well, we can price it the way we want to price it. Okay. I can't believe I'm sitting next to you right now. It's mutual. Okay. So the first thing that has to happen is you have to cost out what true costs are for different levels of delivery. And then whenever you have that price, I want you to 5 or 10x that cost. And then that's what your price is. And so you'll probably have to create... like a dynamic sheet, which you could either code with AI really easily or just have like an if-then type Excel sheet, either way would work. But as you're going through it with a customer, it should basically pop out what that price for that thing's going to be, and it's all dynamic. So I have headcount of the event. And then from there, we're going to have our variable costs, which are what are the costs that scale with headcount. So we have sponsors, vendors. Yeah, exactly. So these are the costs that scale with this and are going to be proportional. Sure. And then we're going to have our fixed costs, which is going to be Amber can only, it's one quarter of Amber. So it's like, great, that's going to be 15K is one quarter of Amber because she can only handle four. And then what other fixed costs do we have that are probably gonna be more fixed payroll stuff versus kind of the other costs that are associated that are gonna be more like the AV related or whatever. Got it. Speaker 2 (5:26) Is that track? Yeah, for Speaker 1 (5:27) sure. Okay. So once you have this, it's like you're going to have a sheet that has a cost number that comes to the bottom. You're not going to show that to them. And then at that point, you know that your range is going to be five to 10X this number. And that to me would be like, how rich is the person I'm talking to? I'm just being real. Bigger company. If you get lawn care in one of the top 10 zip codes in the United States and you have the exact same amount of grass and you have it in a really poor part of the United States, the price difference between that lawn care, as somebody who knows, Speaker 2 (5:59) it's two Speaker 1 (6:00) to three X difference. And I just call it a zip code tax. This is the privilege I get to have is to pay more for the exact same thing. I Speaker 2 (6:06) love that. Can I just say to all the future clients out there? You're going to pay. It's going to be a great price. Whatever you pay is going to be, you Speaker 1 (6:13) know. You're fine. At the end of the day, everyone else is doing this too. They're just not being organized about it. So that's number one is that we need to have standardized pricing so that you can actually get your sales guys to be able to quote without having this super long delay in the process. And so at the end of the year, you're not like, how much money do we make? We should know exactly how much money we're making on every event. Sure. Speaker 2 (6:34) Yeah, this seems like a programmable AI thing that... Can be done in a couple hours. Yes. Speaker 1 (6:40) Now, to make this kind of offer better, so this gives us our cost basis. What I want to do is add basically a price lock guarantee. Speaker 1 (6:49) which is like, as long as you don't change anything about this, this is going to be the price. And we give a 10 % discount if you prepay it all ahead. That way you can pull cash for it. Because right now I'm sure you're getting paid some now, some in the middle, some at the end or something like that. Does that Speaker 2 (7:06) sound Speaker 1 (7:06) true? Speaker 2 (7:07) Yeah. And something that I'm going through is I've never been through a lawsuit. suing a client right now who didn't pay us. And now we're having to hunt down that money. And do Speaker 1 (7:18) they have money? Speaker 2 (7:18) Nope. They just filed for it. There's no point in suing. Speaker 1 (7:20) Oh Speaker 2 (7:20) yeah. Voluntary bankruptcy. There's no point in Speaker 1 (7:22) suing. Yeah. Just save your dollars, call it a cost of business. Yeah. That's fair. Yeah. Just let me save you Speaker 2 (7:27) some time. Speaker 1 (7:28) Let me save you some money and some headache. It's not, you're not going to get the money. So there's no point. Navigating Speaker 2 (7:31) that. So like getting it all up front helps us avoid having to chase it later. 100%. Yeah. Speaker 1 (7:36) There's also the value of money today. If you, if you have a bet a year from now, you just stuck that money into them. bond or whatever, you know what I mean? Or the stock market, well, the stock market is probably not the best way to put it, but