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Utilizing scarcity urgency and guarantees in sales

5 min read

From: alexhormozi

To effectively sell the same thing for more money, the key is to create offers so compelling that potential customers “feel stupid saying no” [00:00:01], [01:46:00]. This principle is considered the most impactful lever for business success [00:00:06], [04:55:00].

The Power of the Offer

An “offer” is the specific package of value given in exchange for money, bridging the product and the market [02:24:00].

Identifying a Weak Offer

A “shitty offer” can be identified by several signs:

  • Difficulty in acquiring leads [02:51:00].
  • Low conversion rates where most people don’t want to buy [02:52:00].
  • Customers comparing prices to competitors, leading to price-driven rather than value-driven decisions [02:55:00], [03:10:00].

Benefits of a Strong Offer

When an offer is strong, it connects with a large segment of the market, leading to significant financial gains [03:35:00]. It compels the entire niche to feel they “need this” [03:48:00], making lead generation and sales much easier [03:52:00].

A strong offer enables a shift from price-driven decisions to value-driven decisions, where customers want the product so much they perceive it as unique and irreplaceable, allowing for premium pricing [04:02:00].

Key outcomes of a strong offer:

An example from a Facebook ads agency showed how simply changing the offer, without altering the underlying business mechanics, transformed a negative return on advertising into an 11.2x return, increasing sales 22 times over [05:03:00], [08:01:00].

Selling to the Right People

The value derived from a service or product often depends more on “who you find” than “what you provide” [12:41:00], [08:44:00]. Working with clients who are inherently more valuable allows for greater compensation for the same amount of work [10:18:00], providing significant leverage [10:29:00].

A story illustrates this: A man who helped a stranded motorist was rewarded with his mortgage paid off, not because of the act itself, but because the motorist happened to be a billionaire [12:48:00]. This highlights the importance of choosing whom to serve [13:39:00]. It’s crucial to be able to say “no” to undesirable clients to make room for those who will pay more and are better to work with [13:48:00].

Characteristics of Ideal Markets

When choosing a market or customer segment, look for four characteristics:

  1. Pain: Do they have a problem you can solve [14:22:00]? Find the “starving crowd” — underserved segments with significant needs [15:28:00].
  2. Purchasing Power: Do they have the money to spend [14:24:00]? Avoid audiences who cannot afford your service, as seen in the example of an unemployed person struggling to afford a $300 consultation [15:50:00]. Transparently communicating price early on can filter out those who cannot afford it [16:32:00].
  3. Easy to Find: Are they aggregated and easily targetable for advertising [14:25:00]? Niches with associations, Facebook groups, or professional services make targeting much simpler across various platforms [17:31:00].
  4. Growing: Is the market expanding [14:27:00]? Choosing a growing market means you “grow by default” [20:10:00], akin to Warren Buffett’s analogy: “It wasn’t about how hard you row but the boat you’re in” [18:55:00]. A great manager in a bad market will still lose [19:57:00].

Charging a Lot of Money (The Right Price)

A guiding principle is to “charge as much as you can without cracking a smile” [20:56:00]. This relates to the concept of price-to-value discrepancy: price is what you pay, value is what you get [21:11:00]. Everyone wants a bargain, regardless of the absolute price [21:30:00].

The Virtuous Cycle of Price

Instead of lowering prices (the “hard way” that leads to competing on price and becoming a commodity) [21:48:00], focus on increasing value. This creates a “value-driven decision” [22:15:00].

The “virtuous cycle of price” demonstrates that increasing your price leads to:

Conversely, lowering prices creates a “vicious cycle” of decreased emotional investment, perceived value, results, and profit [26:46:00].

Price itself is a component of value [31:37:00]. Studies show that when people are told a product is expensive, they perceive its value as higher, even if it’s the same product [30:41:00]. The goal is to be so much more expensive that consumers categorize your solution differently from competitors [31:41:00].

In services where client participation is necessary for success, charging more ensures higher investment, leading to better student/client outcomes [32:02:00]. An example is a weight loss challenge where participants paid a refundable $500, resulting in a 78% success rate, significantly higher than typical gym memberships [32:32:00].

Raising prices can also automatically increase the quality of your prospects, filtering out less capable clients [33:35:00]. One weight loss brand saw its revenue double, ROAS (Return on Ad Spend) increase from 5:1 to 10:1, and profit triple, simply by raising prices by 50% without other changes [34:00:00].

Reverse Engineering Value

Value can be systematically engineered using a formula with four key variables:

  1. Dream Outcome: Ensure the offer delivers something truly desired by the customer [37:28:00], [37:49:00].
  2. Perceived Likelihood of Achievement: Increase confidence that the outcome is achievable [37:32:00], [37:50:00].
  3. Speed of Achievement: Deliver results as quickly as possible [37:36:00], [37:47:00].
  4. Effort & Sacrifice (Ease): Make the process as easy as possible for the customer [37:37:00], [37:45:00].

Additionally, to increase value and drive sales, incorporate:

By combining these elements, businesses can create offers that justify higher prices by providing overwhelming value, making it difficult for prospects to decline.

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