23. Continuity Offer. Discount + One Time Fee. | $100M Lost Chapters Audiobook
In this episode of The Game, Alex Hormozi examines a business strategy called the continuity model, which combines heavily discounted initial terms with additional fees to attract and retain customers. Hormozi traces the model's origins and explains how businesses can implement substantial discounts while maintaining profitability through strategic setup fees.
The episode covers the psychological aspects of customer retention through upfront fees, demonstrating how larger initial investments often lead to longer-lasting customer relationships. Hormozi also discusses how businesses can manage these fees flexibly, including when and how to waive them to close deals and build customer relationships. The episode provides insights into structuring service-based business models that balance customer acquisition with long-term profitability.
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1-Page Summary
Continuity Model: Components, Origin, Benefits
Alex Hormozi discusses the continuity offer model, a business strategy that combines heavily discounted initial terms with additional fees to attract and retain customers. The model originated from Owen, a former gym manager who pitched the idea to Hormozi, demonstrating how a discounted first month combined with an enrollment fee could cover acquisition costs while attracting new customers.
Understanding the Model's Structure and Applications
The continuity model can be applied across various services, whether they're recurring or defined-end programs. Hormozi explains that businesses can offer substantial discounts (such as 95% off or $1,900 off) for the first month while implementing a setup fee to ensure profitability. This structure works particularly well for services requiring active customer participation.
Strategic Implementation of Fees
According to Hormozi, higher upfront fees create stronger barriers to both entry and exit, leading to increased customer retention. He shares an example of a colleague who charges a $5,000 initial fee followed by $267 monthly payments, resulting in customer relationships lasting over two years. The psychology is straightforward: when customers make a significant upfront investment, they're more likely to remain committed to the service.
Flexible Fee Management
Hormozi suggests that businesses can strategically manage these one-time fees by allowing salespeople to waive or discount them when needed. This flexibility can help close more deals and build goodwill with customers. When fees are portrayed as significant and then waived, it creates a sense of special treatment that can foster stronger, longer-lasting customer relationships.
1-Page Summary
Additional Materials
Clarifications
- The continuity offer model is a subscription-based sales strategy designed to create ongoing customer relationships. It typically involves an initial discounted offer to attract customers, followed by regular recurring payments. This model aims to generate steady revenue and increase customer lifetime value. It is commonly used in services like gyms, software subscriptions, and membership programs.
- The model offers a very low price initially to attract customers quickly. To balance this, businesses charge extra fees, like setup or enrollment fees, to cover costs and ensure profit. This approach lowers the barrier to trying the service while maintaining overall revenue. It leverages customer psychology by combining an attractive entry price with committed spending.
- Owen, a former gym manager, created the idea by combining a low-cost first month with an enrollment fee to attract customers while covering marketing expenses. The enrollment fee is a one-time charge that offsets the cost of acquiring each new customer, such as advertising and sales efforts. This fee ensures the business does not lose money despite the initial discount. It balances customer acquisition costs with revenue upfront.
- Recurring programs are services that continue indefinitely until the customer cancels, such as monthly subscriptions. Defined-end programs have a fixed duration or number of sessions, ending after a set period or completion of the program. Recurring models focus on ongoing customer retention, while defined-end models emphasize completion and potential renewal. This distinction affects how businesses structure fees and customer engagement.
- Substantial discounts attract a large number of new customers quickly, increasing volume. Setup fees cover the initial costs of acquiring and onboarding each customer. This combination ensures the business recovers expenses upfront despite the low first-month price. Over time, recurring payments generate profit as customers stay engaged.
- "Services requiring active customer participation" means customers must regularly engage or take part in the service for it to be effective. Examples include fitness programs, coaching sessions, or subscription-based learning platforms. These services rely on ongoing involvement rather than a one-time purchase. Active participation helps ensure customers see value and continue their subscription.
- Higher upfront fees make customers think carefully before joining, increasing their commitment. This investment creates a psychological effect called the "sunk cost fallacy," where people continue to use a service to avoid feeling their money was wasted. It also discourages customers from leaving quickly, as they want to get their money’s worth. Thus, these fees help businesses retain customers longer.
- When customers make a significant upfront investment, they experience the "sunk cost fallacy," feeling compelled to continue to avoid wasting their initial payment. This investment also increases their perceived value of the service, making them more motivated to use it. Additionally, committing money upfront creates a psychological bond, enhancing loyalty and reducing the likelihood of cancellation. This effect leverages human tendencies to justify prior decisions and maintain consistency in behavior.
- The $5,000 initial fee plus $267 monthly payments typically applies to high-value coaching, consulting, or specialized service programs. These industries often require significant upfront investment for onboarding, training, or setup. The ongoing monthly fee covers continued access, support, or membership benefits. This pricing structure helps ensure client commitment and business cash flow stability.
- Salespeople may offer to waive or reduce fees during negotiations to make customers feel valued and special. This tactic often occurs after the customer expresses hesitation or concern about cost. By removing or lowering a fee, the salesperson creates a sense of a personalized deal, increasing trust and loyalty. This perceived generosity encourages customers to commit and stay longer with the service.
- Waiving fees after initially presenting them as significant leverages the principle of reciprocity, making customers feel they are receiving a special favor. This tactic increases perceived value and trust, encouraging commitment and loyalty. It also creates a psychological contrast, making the offer seem more attractive than if the fee were never mentioned. Salespeople use this to build rapport and reduce buyer resistance.
Counterarguments
- The model assumes customers are primarily motivated by financial incentives, which may not always be the case. Some customers may prioritize quality, brand reputation, or other factors over price.
- Heavily discounted initial terms might attract customers who are only interested in the discount and not long-term engagement, potentially leading to a high churn rate after the initial period.
- The strategy of high upfront fees could deter potential customers who are unable or unwilling to make a significant initial investment, limiting the market reach.
- The effectiveness of the model may vary significantly across different industries and customer segments, and what works for one business might not work for another.
- The model could potentially lead to customer dissatisfaction if the perceived value after the initial discount does not meet expectations, which can harm the business's reputation.
- Waiving or discounting fees to close deals could undermine the perceived value of the service and lead to inconsistencies in how customers are treated, which may be viewed as unfair or unprofessional.
- Relying on psychological commitment due to high upfront costs may not always lead to genuine customer satisfaction or loyalty; it might simply create a sunk cost fallacy for the customer.
- The model may encourage a focus on short-term gains rather than building long-term value and relationships with customers through other means, such as exceptional service or product quality.
- There could be ethical considerations regarding the transparency of the fee structure and whether customers fully understand the long-term costs associated with the service.
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Continuity Model: Components, Origin, Benefits
The continuity offer model is an increasingly popular business strategy that combines discounted rates with additional fees. Alex Hormozi offers insight into the components, origin, and advantages of this approach.
Discounted First Term Continuity Offer With Fees
The continuity model is an approach to attract customers with a heavily discounted first term while balancing costs with extra fees.
Discounted First Term Attracts Customers; Extra Fees Cover Marketing Costs
A significant discount draws customer interest, while the fees compensate the marketing and sales acquisition costs. Hormozi describes a structure that includes a discounted rate for the first term or service, with subsequent additional fees that could either be charged or waived, providing flexibility in the offer.
Offer Inspired by Former Gym Manager's Similar Model Pitch to Podcast Host
The inspiration for this offer structure comes from Owen, a gym manager Hormozi previously worked with, who introduced a discounted rate for the first month combined with a one-time enrollment fee to cover commissions and acquisition costs.
Continuity Offer Applies To Various Models and Services
This offer structure is relevant across a range of services, catering to both recurring or defined-end programs.
Discounted First Month For Recurring Services With Setup Fee
Hormozi provides examples of recurring services where a substantial discount (e.g., 95% off or $1,900 off) for the first month can be applied, and a setup fee is charged to ensure profitability from the start.
Continuity Offer Boosts Commitment and Cuts Churn
The continuity offer is designed to foster commitment and reduce customer churn through strategic fee structures.
Higher Upfront Fees Increase Barriers to Entry and Exit, Boosting Customer Lifetime Value
The larger the one-time upfront fee, the greater the customer retention, which ...
Here’s what you’ll find in our full summary
Continuity Model: Components, Origin, Benefits
Additional Materials
Clarifications
- The continuity offer model is a subscription-based sales strategy designed to create ongoing customer relationships. It typically involves an initial low-cost or discounted offer to attract customers, followed by regular charges to maintain the service. This model aims to generate steady revenue and increase customer lifetime value by encouraging long-term commitment. It is commonly used in industries like fitness, software, and educational programs.
- Additional fees are charges separate from the discounted initial price, often covering costs like setup, enrollment, or marketing. They help businesses recover expenses that the low first-term price does not cover. Unlike the discounted rate, which attracts customers, these fees ensure the business remains profitable. This structure balances customer acquisition with sustainable revenue.
- Marketing and sales acquisition costs include expenses like advertising, sales commissions, and promotional materials. These costs are often high upfront to attract new customers. Extra fees help recover these initial investments that the discounted first term does not cover. Without these fees, the business might lose money on each new customer.
- "Subsequent additional fees that can be charged or waived" means that after the initial discounted term, the business may apply extra fees depending on the situation. These fees might cover ongoing costs like maintenance or service upgrades. Sometimes, the business chooses to waive these fees as a promotion or customer incentive. This flexibility helps tailor the offer to different customer needs or marketing strategies.
- Alex Hormozi is an entrepreneur and author known for his expertise in business growth and sales strategies. He has built and scaled multiple companies, particularly in the fitness and service industries. His insights are valued because they are based on practical experience and proven results. Hormozi often shares strategies that help businesses increase customer acquisition and retention.
- The gym manager's model is effective because it lowers the initial cost barrier, attracting more customers to try the service. The one-time enrollment fee covers the cost of acquiring each customer, ensuring the business remains profitable despite the discount. This combination balances customer acquisition with financial sustainability. It also creates a psychological commitment, making customers more likely to continue using the service.
- Recurring services are ongoing offerings billed regularly, such as monthly subscriptions. Defined-end programs have a fixed duration and end after a set period or completion of specific goals. Recurring services focus on continuous delivery, while defined-end programs emphasize a finite commitment. This distinction affects pricing and customer retention strategies.
- A setup fee is a one-time charge that covers initial costs like onboarding, training, or system configuration. It helps the business recover expenses that aren't covered by the discounted first term. This fee ensures the company doesn't lose money on new customers despite offering a low initial price. It also signals customer commitment, reducing the chance of early cancellations.
- Upfront fees create a financial commitment that makes customers think twice before canceling, increasing retention. This commitment acts as a psychological and monetary barrier t ...
Counterarguments
- The continuity offer model may not be suitable for all customer segments; some consumers may be deterred by the initial high fees, preferring transparent pricing without hidden or additional costs.
- While the model aims to reduce churn, customers might feel misled if they are not fully aware of the additional fees after the discounted first term, potentially leading to dissatisfaction and negative word-of-mouth.
- The effectiveness of the model heavily depends on the perceived value of the service; if the service does not meet customer expectations, no pricing strategy can ensure long-term commitment.
- High upfront fees can create a high barrier to entry for some customers, potentially limiting the market size and excluding price-sensitive customers who could have been valuable long-term clients with a different pricing strategy.
- The model assumes that customers who pay more upfront will be more committed, but this may not always be the case; some customers may simply regret their purchase and disengage, feeling locked in due to the sunk cost.
- The success stories mentioned, such as the friend charging a high initial fee, may not be universally replicable and could be exceptions rather than the rule, depending on various factors like market conditions, service quality, and brand reputation.
- The model's focus on initial profitability through ...
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Implementing Continuity Offers: Setting One-time Fees to Increase Customer Commitment
To engage customers more deeply and secure their long-term commitment, companies are now implementing one-time fees. These fees, when chosen and utilized strategically, can deter churn and enhance the customer's investment in the service.
Choosing the Name, Price, and Rationale for a One-time Fee
Explain and Present Fee Consistently
Introducing a one-time fee starts with picking an appropriate name, setting the price, and defining the rationale behind it. It's essential that the purpose of the fee is clear, even if the reasoning is constructed for the benefit of the offer. Detailing the work or benefits that the fee covers ensures transparency and consistency in how the fee is presented to every customer.
Higher Fees Deter Churn, Boost Commitment
Hormozi suggests that the higher the one-time fee, the less likely customers are to churn; a substantial initial investment often correlates with heightened commitment. The psychology behind this is simple: when customers pay, they tend to be more engaged, especially when the service requires active customer participation.
Using the One-time Fee Strategically By Discounting or Waiving It Can Build Goodwill and Sweeten the Deal For Customers
Empowering Salespeople to Waive or Discount Fees Closes More Deals
Empowering salespeople to have the discretion to waive or discount these fees can be the tipping point for closing more deals. Such flexibility allows salespeople to adjust the offer to better fi ...
Here’s what you’ll find in our full summary
Implementing Continuity Offers: Setting One-time Fees to Increase Customer Commitment
Additional Materials
Counterarguments
- One-time fees might create an initial barrier to entry, potentially deterring price-sensitive customers from signing up for the service.
- The effectiveness of one-time fees in reducing churn could vary significantly across different industries and customer segments.
- If not communicated effectively, one-time fees can be perceived as hidden costs, leading to a loss of trust and potential damage to the company's reputation.
- Relying on higher one-time fees to boost commitment might not address underlying issues with the service that cause churn.
- The strategy of empowering salespeople to waive or discount fees could lead to inconsistent pricing and customer experiences.
- Waiving or discounting fees might set an expectation for discounts, leading customers to wait for a better offer rather than committing immediately.
- The practice of waiving made-up fees could be seen as manipulative or dishonest if customers perceive the f ...
Actionables
- You can create a personal "investment fee" for self-improvement activities to increase your commitment to them. For example, if you're trying to learn a new language, pay into a fund every time you complete a lesson. This money can then be used for something related to your goal, like a trip to a country where the language is spoken, which can motivate you to stick with your learning plan.
- Consider offering your expertise or help to friends for a one-time fee that goes towards a shared experience or cause. If you're good at graphic design, for instance, design something for a friend and instead of charging them, ask that they contribute to a joint fund for a group activity or donation. This approach can strengthen relationships and provide a sense of shared investment.
- Empower yourself to waive personal "penalty fees" for habits you're trying to b ...
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