20. Upsell Offer. Free With Alternative Revenue Stream. | $100M Lost Chapters Audiobook
In this episode of The Game, Alex Hormozi breaks down the mechanics of a specific marketing strategy that combines free trials, downsells, and upsells. He explains how businesses can use free initial offers to attract customers while maintaining high profit margins through strategic upselling, with data showing that around 90% of customers accept well-positioned upsells.
The episode explores how various businesses have implemented this approach, from storage facilities to fitness centers to physical therapy practices. Hormozi examines why this strategy often outperforms traditional pricing models, discussing how it leverages free offers to boost customer volume while using upsell profits to cover acquisition costs. The strategy's flexibility makes it suitable for businesses selling physical products, digital offerings, or services.
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The Free Trial/Downsell/Upsell Strategy and how It Works
The free trial/downsell/upsell strategy is a marketing approach that starts with a free offer to attract customers and then guides them toward purchasing higher-priced products or services. The key is to ensure the initial free offer has low costs while subsequent upsells maintain high profit margins, often around 80%.
Alex Hormozi notes that about 90% of customers will accept upsells when they're presented as logical additions to the free front-end offer. The process should feel natural and smooth, presenting the upsell as an obvious next step for the customer.
Examples Of Applying This Strategy In Different Businesses
Several businesses have successfully implemented this strategy in creative ways. Storage facilities often offer a free month of storage, followed by an upsell of an exclusive lock that only fits their units. In the fitness industry, gym owners have found success offering free 28-day weight loss programs, later upselling $400 supplement packages during nutrition orientations. Physical therapists have also adopted this approach, providing free treatments before introducing products like custom orthotics and athletic tape.
Benefits and Advantages Of Using This Strategy
This approach typically generates more revenue than traditional moderate pricing models. The strategy works by using profits from upsells to cover customer acquisition costs, rather than relying on the initial free offer for revenue. It's particularly effective because free offers are easily shareable, boosting customer volume and referrals.
The versatility of this strategy makes it applicable across various business types, working equally well for physical products, digital offerings, and services. It's particularly effective for internal promotions within an existing customer base, creating opportunities for additional revenue through strategic upselling.
1-Page Summary
Additional Materials
Clarifications
- An upsell is when a seller encourages a customer to buy a more expensive or premium version of a product or add extra features. A downsell occurs when a customer declines the upsell, and the seller offers a cheaper or simpler alternative instead. Both techniques aim to increase the overall sale value by matching offers to the customer's willingness to pay. These strategies help maximize revenue by tailoring options to different customer preferences.
- Profit margin is the percentage of revenue that remains after all costs are subtracted. An 80% profit margin means the business keeps 80 cents as profit for every dollar earned. High profit margins indicate efficient cost management and strong pricing power. This allows businesses to invest in customer acquisition and growth while remaining profitable.
- The "90% of customers will accept upsells" statistic likely comes from sales data or marketing research by Alex Hormozi or similar experts. It matters because it shows a high success rate for upselling when done correctly, indicating strong potential revenue growth. This figure helps businesses trust the strategy and motivates them to implement upsells confidently. Understanding this percentage highlights the effectiveness of presenting upsells as natural extensions of the initial offer.
- "Logical additions to the free front-end offer" means upsells that naturally complement or enhance the initial free product or service. For example, if a gym offers a free workout plan, a logical addition could be personalized coaching or supplements that improve results. These additions feel relevant and useful, not random or pushy. This relevance makes customers more willing to buy because the upsell fits their current needs.
- Upsells feel natural and smooth when they directly relate to the customer's initial interest or problem. They should be presented as helpful enhancements, not aggressive sales pitches. Timing is crucial—offer upsells after the customer has experienced value from the free trial. Clear explanations of benefits make the upsell seem like a logical next step.
- Storage facilities often require specific lock types to ensure security and compatibility with their unit doors. These exclusive locks prevent customers from using generic locks that might not fit properly or be as secure. By upselling these locks, facilities increase security and create an additional revenue stream. This also encourages customers to stay longer, as their belongings are safely secured.
- Nutrition orientations are sessions where gym staff assess a member's dietary habits and goals. They provide personalized advice on nutrition to support fitness objectives. During these sessions, staff recommend supplements that complement the member's diet and workout plan. This creates a natural opportunity to offer higher-priced supplement packages.
- Customer acquisition cost (CAC) is the money a business spends to attract a new customer, including marketing and sales expenses. Covering CAC means the business recovers these costs through profits made from selling additional products or services after the initial offer. Upsells are higher-priced items or add-ons sold after the first purchase, generating extra profit. This profit helps the business break even or make money despite giving away the initial product or service for free.
- "Internal promotions within an existing customer base" means marketing additional products or services to people who have already bought from you. It leverages the trust and relationship built with current customers to encourage repeat purchases. This approach often costs less than acquiring new customers. It focuses on increasing the lifetime value of each customer by offering relevant upgrades or complementary items.
- A free trial is an initial no-cost offer to attract customers and let them experience the product or service. A downsell is a lower-priced alternative offered if the customer declines the main upsell, aiming to retain the sale. An upsell is a higher-priced or premium offer presented after the free trial to increase the customer's purchase value. These steps create a sales funnel that moves customers from free use to progressively more valuable purchases.
Counterarguments
- The success rate of 90% for upsells may not be consistent across all industries or customer demographics; this figure could be overly optimistic or based on a specific context that may not apply universally.
- Customers may feel manipulated or pressured by upsell tactics, which could harm the brand's reputation and customer trust in the long term.
- The strategy assumes that customers who accept a free offer have the financial capacity or willingness to purchase upsells, which may not always be the case.
- Over-reliance on upsells to cover customer acquisition costs could lead to unsustainable business practices if upsell conversion rates drop.
- The strategy may not be as effective in markets with high competition, where customers have many similar free or low-cost options.
- Some customers may become accustomed to expecting free or discounted offers and may not convert to full-price purchases.
- The strategy could potentially alienate customers who are looking for straightforward pricing without the expectation of further sales tactics.
- Upselling can sometimes lead to a negative customer experience if the additional products or services are not of value to the customer.
- The strategy requires careful balance and timing; if upsells are introduced too aggressively or too soon, it could lead to customer churn.
- There may be ethical considerations in certain industries, such as healthcare, where upselling could be seen as taking advantage of vulnerable customers.
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The Free Trial/Downsell/Upsell Strategy and how It Works
The free trial/downsell/upsell strategy is a marketing approach designed to engage customers with a free offer and guide them towards purchasing higher-priced products or services.
Strategy: Use Free Trial to Upsell/Downsell Higher-Priced Product/Service
Free Offer Gains Customers to Generate Revenue Through Upsell or Downsell
The strategy starts by capturing customer interest through a free offer. For example, a gym owner might provide a free USB drive with home workout programs and then book clients for a complimentary nutrition orientation where supplements are sold. Similarly, a physical therapist could offer free treatments and then independently upsell related products like orthotics or athletic tape to enhance the effectiveness of the treatment.
Free Offer Should Have Low Costs; Upsell/Downsell Has Higher Margins
An essential aspect of this strategy is that the initial offer should have low incremental costs, while the subsequent upsell or downsell products or services have higher margins. For instance, the aforementioned gym owner uses the free USB drive to attract customers and then upsells on supplements, often leading to customers spending 50% more than the average client on these higher-margin products. The free item itself makes no profit, yet it's expected that a significant percentage will opt for the upsell, which typically has high profit margins, like 80%.
Guiding Customers From Free Offer to Higher-Priced Upsell/Downsell
After providing the free offer, the business owner guides the customer towards higher-priced upsells or downsells. In the case of the gym owner, after distributing the free USB, they recommend a nutrit ...
Here’s what you’ll find in our full summary
The Free Trial/Downsell/Upsell Strategy and how It Works
Additional Materials
Clarifications
- An upsell is when a seller encourages a customer to buy a more expensive or premium version of a product or service. A downsell is offering a cheaper or lower-tier alternative when the customer declines the upsell. Both techniques aim to increase the overall sale value or retain the customer by providing options. These strategies help tailor offers to different customer budgets and preferences.
- Profit margin is the percentage of revenue that exceeds the cost of producing a product or service. Upsell and downsell products often have higher margins because they cost less to produce or acquire relative to their selling price. This allows businesses to earn more profit per sale compared to the initial free or low-cost offer. Higher margins help cover marketing expenses and increase overall profitability.
- A free offer with low incremental cost is important because it minimizes the business's financial risk while attracting many potential customers. If the free offer were expensive to provide, the business could lose money before any upsells occur. Low-cost freebies allow for broad distribution without significant expense. This strategy ensures that the profit mainly comes from the higher-margin upsell or downsell products.
- Businesses guide customers by creating a seamless experience where the upsell or downsell feels like a natural extension of the free offer. They use personalized communication, such as follow-up emails or consultations, to highlight the benefits of the next product or service. Sales staff are trained to listen to customer needs and suggest relevant upgrades or alternatives. Timing is crucial, often presenting the upsell immediately after the free trial when interest is highest.
- The 90% acceptance rate refers to the high likelihood that customers will agree to purchase an upsell if it logically complements the free offer. This rate highlights the effectiveness of well-aligned upsells in converting interest into sales. It serves as a benchmark for businesses to measure the success of their upsell strategies. Alex Hormozi uses this figure to emphasize the importance of relevance and timing in upselling.
- An upsell offers a more expensive or premium version of a product after the initial offer. A downsell provides a cheaper or simpler alternative if the customer declines the upsell. For example, after a free trial, an upsell might be a full gym membership, while a downsell could be a discounted class package. This approach helps capture sales from customers with different budgets or needs.
- Incremental costs are the additional expenses incurred when producing or providing one more unit of a product or service. They include materials, labor, and other resources directly tied to that extra unit. These costs do not cover fixed expenses like rent or salaries that remain constant regardless of output. Understanding incremental costs helps businesses pric ...
Counterarguments
- The strategy assumes that customers will be interested in upsells or downsells, which may not always be the case, leading to lower conversion rates than expected.
- Free offers can attract customers who are only interested in the freebie and have no intention of purchasing additional products or services, potentially wasting resources.
- High acceptance rates for upsells, like the 90% mentioned, may not be achievable for all businesses or industries, as customer behavior can vary widely.
- The strategy could potentially damage the perceived value of a product or service if customers come to expect free offers and are reluctant to pay full price later.
- Upselling and downselling require careful balance to avoid appearing pushy or salesy, which can turn customers off.
- Not all products or services lend themselves well to the upsell/downsell model, particularly those with a high degree of customization or complexity.
- The strategy may require additional staff training and costs to ensure that the upsell and downsell process is handled effectively and tactfully.
- Over-relia ...
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Examples Of Applying This Strategy In Different Businesses
Different businesses effectively use a common marketing strategy where an initial free offer is provided to lure customers, followed by a highly profitable upsell. Here are some examples of how various businesses apply this strategy.
Storage Business Offer: Free Month + Exclusive Lock Upsell
Free Storage Offer Lures Customer, Then Profitable Lock Upsell Proposed
One example is the storage unit business, where an enticing offer of a free month of storage is made to draw in customers. Once the customer has decided to use the storage facility, they are presented with an upsell: an exclusive lock that only fits the doors of the unit and cannot be purchased elsewhere. This exclusive lock becomes a necessary additional purchase for customers to secure their belongings, boosting the business's revenue.
Free Offer: 28-day Weight Loss Program, $400 Supplement Upsell
Free Weight Loss Program Engages Customers; Upsell of Higher-Margin Supplements Offered to Generate More Revenue
In the fitness industry, a gym owner adopted a similar strategy by offering a free 28-day weight loss program. Once engaged, customers are invited to a nutrition orientation, which serves as the platform for the upsell—an independent $400 supplement package. This high-margin product adds signific ...
Here’s what you’ll find in our full summary
Examples Of Applying This Strategy In Different Businesses
Additional Materials
Counterarguments
- The strategy may not be sustainable if the cost of the free offer outweighs the profit from the upsell, especially if a significant number of customers do not opt for the upsell.
- Customers may feel pressured or deceived if they perceive the free offer as a bait-and-switch tactic, which can damage the business's reputation and customer trust.
- The effectiveness of the strategy can vary greatly depending on the industry, the value proposition of the upsell, and the target customer base.
- There is a risk that the free offer can attract bargain hunters who have no intention of purchasing additional products or services, leading to a loss on the initial offer without any compensating upsell revenue.
- Upselling can sometimes lead to a negative customer experience if it is too aggressive or if the upsell products are not aligned with the customer's needs or expectations.
- The strategy relies on the assumption that customers will need or want the upsell, which may not always be the case, potentially leading ...
Actionables
- You can create a referral program where customers get a free service or product for bringing in new clients, then offer them a premium version at a discount. For instance, if you run a car wash, give a free basic wash to customers who refer a friend, and then offer them a discounted detailing service, which is more comprehensive and profitable.
- Consider bundling complementary products or services at a discounted rate after a customer makes a free initial appointment or purchase. For example, if you own a coffee shop, you could offer a free coffee tasting session and then provide a bundle offer that includes a bag of premium coffee beans and a coffee-making workshop at a reduced price.
- Develop a loyalty program that rewards cust ...
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Benefits and Advantages Of Using This Strategy
By adopting a business strategy that offers a free product as a gateway to upsell higher-priced items, companies can generate substantial revenue and cultivate a larger, more engaged consumer base. This method has proven effective across both physical and digital products, as well as services.
Generate More Revenue Than Upfront Moderate Pricing
Offer a Free Trial to Upsell a Higher-Priced Product for Increased Customer Revenue
For instance, a gym owner managed to generate more revenue by offering a free program and subsequently selling higher-priced supplements than they would have by merely selling gym memberships at a moderate price. By using the free offering as a front-end, a business can upsell more expensive products, thus increasing the lifetime customer revenue beyond what moderate upfront pricing could bring in. Offering a free trial with an upsell not only entices clients to accept the offer but also typically results in a higher monetary return than selling a moderately priced stand-alone product from the outset.
Liquidate Costs By Profiting From Upsell, Not the Free Offer
Upsell Revenue Covers Customer Acquisition Costs
The key to success with this strategy is that the profit from the upsell, rather than the free offer itself, covers customer acquisition costs. The gym owner saw this strategy as a "no prospect left behind" approach. It increases engagement and has the potential to elevate sales and referrals because every visitor receives assistance and value from the outset, which builds a foundation for upselling.
Boost Customer Volume and Referrals With a Shareable Free Offer
Free Offer Boosts Engagement, Increasing Sales and Referrals
Moreover, a free offer can boost customer engagement, translating into a higher sales volume and an increased likelihood of referrals. Free products are easy to promote and can spur existing customers to invite frie ...
Here’s what you’ll find in our full summary
Benefits and Advantages Of Using This Strategy
Additional Materials
Counterarguments
- Free products might attract customers who are only interested in freebies and have no intention of purchasing upsells, potentially wasting resources.
- The strategy may not work for all business models, especially where upselling opportunities are limited or the market is oversaturated with similar free offers.
- Customer acquisition costs might not always be covered by the upsell, especially if the conversion rate from free to paid products is low.
- Overemphasis on upselling can lead to customer dissatisfaction if they feel pressured or misled by the initial free offer.
- The quality of the free product could set customer expectations for the upsell, and if it's perceived as low quality, it might negatively impact the brand's reputation.
- Relying on upselling for revenue can be risky if external factors, such as economic downturns, reduce customers' willingness to spend on non-essential items.
- The strategy requires careful balance and timing; if the upsell is too aggressive or too soo ...
Actionables
- You can create a simple referral program by giving away a product or service you're skilled at, like baking or graphic design, to friends in exchange for their referrals. For example, if you bake a batch of cookies for a friend, they might refer you to others who would pay for your baking services. This approach leverages your existing skills and network to potentially attract paying customers.
- Start a blog or YouTube channel offering free, valuable content related to a hobby or interest, such as gardening tips or DIY crafts, and then promote affiliate products or your own premium guides. As your audience grows, they may be more inclined to purchase items you recommend or premium content you create, thus generating revenue.
- Offer t ...
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