WEBVTT 1 00:00:00.000 --> 00:00:01.800 But all of it gets around to answer the simple questions 2 00:00:01.800 --> 00:00:03.080 and how much of the customer worked to us. 3 00:00:03.080 --> 00:00:05.000 And then from there, we can make better decisions. 4 00:00:05.000 --> 00:00:06.840 And so when we're looking at companies, 5 00:00:06.840 --> 00:00:08.640 we want to see companies with strong LTVs 6 00:00:08.640 --> 00:00:10.120 or the potential to have strong LTVs, 7 00:00:10.120 --> 00:00:12.280 so that in the future, we could spend more 8 00:00:12.280 --> 00:00:13.600 in the acquisition and scale. 9 00:00:16.880 --> 00:00:18.920 Welcome to the game where we talk about how to sell more stuff 10 00:00:18.920 --> 00:00:21.920 to more people in more ways and build businesses worth owning. 11 00:00:21.920 --> 00:00:23.320 I'm trying to build a billion dollar thing 12 00:00:23.320 --> 00:00:24.560 with acquisition.com. 13 00:00:24.560 --> 00:00:26.840 I always wished pesos, musk and buffet had documented 14 00:00:26.840 --> 00:00:28.720 their journey, so I'm doing it for the rest of us. 15 00:00:28.720 --> 00:00:29.800 Please share and enjoy. 16 00:00:32.160 --> 00:00:33.760 So I was talking to an entrepreneur who'd applied 17 00:00:33.760 --> 00:00:36.080 through acquisition.com to potentially become 18 00:00:36.080 --> 00:00:37.040 a portfolio company. 19 00:00:37.040 --> 00:00:38.920 And one of the questions that I asked him on the call was, 20 00:00:38.920 --> 00:00:40.040 so what's your LTV? 21 00:00:40.040 --> 00:00:41.400 Like how much, you know, how much you make 22 00:00:41.400 --> 00:00:42.720 per customer over the lifetime? 23 00:00:42.720 --> 00:00:46.680 And he honestly was like, I don't know what it is. 24 00:00:46.680 --> 00:00:48.320 I know I should know, blah, blah, blah. 25 00:00:48.320 --> 00:00:50.560 So I'm making this so that you know one of the most 26 00:00:50.560 --> 00:00:52.280 important metrics in entrepreneurship 27 00:00:52.280 --> 00:00:54.320 and I'll give you three different ways you can calculate it. 28 00:00:54.320 --> 00:00:57.640 So the first one and the easiest one to do this 29 00:00:57.640 --> 00:00:59.280 is off of lifetime. 30 00:00:59.280 --> 00:01:02.160 The second way to do it is off of churn. 31 00:01:02.160 --> 00:01:04.640 And the third way is to do it is off sales velocity. 32 00:01:04.640 --> 00:01:05.480 All right. 33 00:01:05.480 --> 00:01:06.960 And I'll finish with sales velocity 34 00:01:06.960 --> 00:01:08.760 because it's the one that I use most frequently. 35 00:01:08.760 --> 00:01:10.400 But all of these are good ways of getting it. 36 00:01:10.400 --> 00:01:11.520 And I'll give you approximations 37 00:01:11.520 --> 00:01:13.240 and I'll explain how each of them is calculated. 38 00:01:13.240 --> 00:01:16.040 Now, as a quick side note, the reason that this is so important, 39 00:01:16.040 --> 00:01:16.800 if you don't know who I am, 40 00:01:16.800 --> 00:01:18.440 acquisition.com, we portfolio it. 41 00:01:18.440 --> 00:01:19.440 It's about $100 million a year. 42 00:01:19.440 --> 00:01:20.760 I just make these because I like doing this 43 00:01:20.760 --> 00:01:21.960 and I'm a crazy person. 44 00:01:21.960 --> 00:01:23.960 So if you are a growing business, 45 00:01:23.960 --> 00:01:26.080 this will underestimate your LTV. 46 00:01:26.080 --> 00:01:27.400 But if you have especially recurring 47 00:01:27.400 --> 00:01:28.880 and you've been doing this for a while 48 00:01:28.880 --> 00:01:31.640 and you are growing, what you do is let's say that you did 49 00:01:31.640 --> 00:01:34.200 $1 million, you're one, you did two million, you're two, 50 00:01:34.200 --> 00:01:35.480 and you did three million, you're three. 51 00:01:35.480 --> 00:01:37.480 All right, let's just say that for a simple example. 52 00:01:37.480 --> 00:01:40.040 And let's say over that entire period of time, 53 00:01:40.040 --> 00:01:43.680 you sold let's say 600 customers, okay? 54 00:01:43.680 --> 00:01:47.120 So what you do here is you add these up, 55 00:01:47.120 --> 00:01:51.480 which means you have six million in total sales lifetime, 56 00:01:51.480 --> 00:01:56.080 over 600 total customers lifetime. 57 00:01:56.080 --> 00:01:58.360 This is again, back of napkin math 58 00:01:58.360 --> 00:02:01.040 of how to get to how much you make per customer. 59 00:02:01.040 --> 00:02:02.960 So it'd be six million divided by 600, 60 00:02:02.960 --> 00:02:04.880 which is probably like 10 grand. 61 00:02:04.880 --> 00:02:07.000 And so that would give you an underestimation 62 00:02:07.000 --> 00:02:07.960 because you will have customers 63 00:02:07.960 --> 00:02:09.160 who are still continuing to pay. 64 00:02:09.160 --> 00:02:11.440 It gives you basically from the beginning until now, 65 00:02:11.440 --> 00:02:12.720 but it doesn't take the future into account. 66 00:02:12.720 --> 00:02:15.680 So it will be under what it is in theory, 67 00:02:15.680 --> 00:02:18.040 but this will give you something to work off of, all right? 68 00:02:18.040 --> 00:02:19.520 So that's number one. 69 00:02:19.520 --> 00:02:22.960 Now, the second way that you can calculate LCB 70 00:02:22.960 --> 00:02:24.240 is based on churn. 71 00:02:24.240 --> 00:02:25.400 And if you don't know what churn is, 72 00:02:25.400 --> 00:02:26.440 it's gonna be the percentage of customers 73 00:02:26.440 --> 00:02:27.960 that leave at the end of the month 74 00:02:27.960 --> 00:02:29.040 that we're here at the beginning of the month. 75 00:02:29.040 --> 00:02:30.760 So let's say you have a hundred customers 76 00:02:30.760 --> 00:02:31.720 at the beginning of the month, 77 00:02:31.720 --> 00:02:33.960 and let's say of those hundred, you've got 95 at the end. 78 00:02:33.960 --> 00:02:35.720 Note that the amount of customers you sailed 79 00:02:35.720 --> 00:02:37.800 sold between here and here does not matter 80 00:02:37.800 --> 00:02:39.000 in this calculation, all right? 81 00:02:39.000 --> 00:02:41.360 Just because people get really fucked up with this, all right? 82 00:02:41.360 --> 00:02:42.920 So if a hundred customers at the beginning, 83 00:02:42.920 --> 00:02:47.520 you have 95 at the end, it means you had five that left, 84 00:02:47.520 --> 00:02:51.800 and you do five divided by 100, right? 85 00:02:51.800 --> 00:02:54.080 Which means you have 5% churn, all right? 86 00:02:54.080 --> 00:02:56.480 That is your churn, very simple, okay? 87 00:02:56.480 --> 00:02:57.560 Now, if you're like, well, 88 00:02:57.560 --> 00:02:58.680 I had some people cancel beginning, 89 00:02:58.680 --> 00:02:59.960 again, all of these are rough estimates 90 00:02:59.960 --> 00:03:01.720 because you can't ever have a beautiful snapshot 91 00:03:01.720 --> 00:03:04.240 in a business ever because time is a component 92 00:03:04.240 --> 00:03:06.360 that fudges the world, all right? 93 00:03:06.360 --> 00:03:09.320 So once you have churn, this is how you use that churn. 94 00:03:09.320 --> 00:03:12.440 So you take your price, your average monthly price. 95 00:03:12.440 --> 00:03:14.600 So let's say you've got a hundred people, 96 00:03:14.600 --> 00:03:18.920 and you're making whenever $100,000 a month, all right? 97 00:03:18.920 --> 00:03:19.960 So you've got 100k per month, 98 00:03:19.960 --> 00:03:21.160 divided by 100 people, 99 00:03:21.160 --> 00:03:25.640 which means you're making $1,000 per month per client, right? 100 00:03:25.640 --> 00:03:26.960 So that's our average price. 101 00:03:26.960 --> 00:03:29.520 When we divide that, which is this thing, right? 102 00:03:29.520 --> 00:03:32.840 You divide that by your churn, all right? 103 00:03:32.840 --> 00:03:37.840 So 1,000 divided by 5% would be 20x, 1k, 104 00:03:38.520 --> 00:03:41.920 which equals 1k, so that is your LTV. 105 00:03:41.920 --> 00:03:43.480 And so if I had this business, 106 00:03:43.480 --> 00:03:46.200 and let's say they were stable at $100,000 a month, 107 00:03:46.200 --> 00:03:47.920 I would know that they're probably only selling 108 00:03:47.920 --> 00:03:50.480 five new clients a month, pretty interesting. 109 00:03:50.480 --> 00:03:51.800 Now, if they're selling more than that, 110 00:03:51.800 --> 00:03:53.760 then I know that they are actually growing, 111 00:03:53.760 --> 00:03:55.200 and they haven't realized or tapped out 112 00:03:55.200 --> 00:03:58.240 what their new revenue threshold is going to be. 113 00:03:58.240 --> 00:03:59.080 Kind of interesting. 114 00:03:59.080 --> 00:04:00.600 This is why it's important and other stuff is an entrepreneur 115 00:04:00.600 --> 00:04:02.840 because you might be like, why isn't it growing faster? 116 00:04:02.840 --> 00:04:05.080 But if you're in the situation, you've got 5% churn, 117 00:04:05.080 --> 00:04:06.920 you're doing $1,000 a month, you've got a hundred customers 118 00:04:06.920 --> 00:04:08.320 and you're selling 20 a month, 119 00:04:08.320 --> 00:04:11.720 then your hypothetical max is gonna be 400k. 120 00:04:11.720 --> 00:04:13.200 So you don't need to change anything, 121 00:04:13.240 --> 00:04:15.600 you just gotta wait, and you're gonna have 400k a month. 122 00:04:15.600 --> 00:04:17.080 All right, that's why LTV is so important 123 00:04:17.080 --> 00:04:18.280 to understand how to calculate it. 124 00:04:18.280 --> 00:04:20.000 All right, so you can do it off lifetime, 125 00:04:20.000 --> 00:04:21.200 which I showed you first. 126 00:04:21.200 --> 00:04:23.160 The second way you can do this is off churn, 127 00:04:23.160 --> 00:04:24.600 and the third way is off sales lossy, 128 00:04:24.600 --> 00:04:26.200 and this is the one that I do most commonly. 129 00:04:26.200 --> 00:04:27.840 And the reason for that is because, 130 00:04:27.840 --> 00:04:29.240 I mean, it'll give you an approximation, 131 00:04:29.240 --> 00:04:33.040 and this is important, especially if you have like a low price, 132 00:04:33.040 --> 00:04:35.520 very high volume like recurring membership. 133 00:04:35.520 --> 00:04:37.040 Lifetime one is helpful. 134 00:04:37.040 --> 00:04:39.240 That one is also useful for that, 135 00:04:39.240 --> 00:04:40.680 but it's more of a hypothetical, 136 00:04:40.680 --> 00:04:41.880 and sometimes it overestimates it, 137 00:04:41.880 --> 00:04:43.400 so you're gonna wanna average out your churn, 138 00:04:43.400 --> 00:04:45.120 because let's say you get five percent churn one month, 139 00:04:45.120 --> 00:04:46.720 but you had 20 a month before, 140 00:04:46.720 --> 00:04:48.520 and 13 a month before that. 141 00:04:48.520 --> 00:04:49.440 So you wanna average your churn, 142 00:04:49.440 --> 00:04:51.960 I'd be like, all right, well, we average 12%, right? 143 00:04:51.960 --> 00:04:53.440 And then you use that as the churn number 144 00:04:53.440 --> 00:04:55.680 that you use the calculation to calculate for the business. 145 00:04:55.680 --> 00:04:56.880 And you wanna do it the most recently, 146 00:04:56.880 --> 00:04:58.360 because if you all of a sudden start selling more, 147 00:04:58.360 --> 00:04:59.520 but then your churn goes up, 148 00:04:59.520 --> 00:05:00.640 those are the new metrics to your business. 149 00:05:00.640 --> 00:05:02.400 You can't use your churn from a year ago 150 00:05:02.400 --> 00:05:04.280 when you were only selling one off people, 151 00:05:04.280 --> 00:05:05.360 and now you have a sales machine, 152 00:05:05.360 --> 00:05:06.520 but you're not doing as well in fulfillment, 153 00:05:06.520 --> 00:05:08.560 because you don't have enough personalized attention, right? 154 00:05:08.560 --> 00:05:09.880 That's why this is so important. 155 00:05:09.880 --> 00:05:11.160 Now, sales velocity, 156 00:05:11.160 --> 00:05:12.480 this is the third way to calculate this, 157 00:05:12.480 --> 00:05:15.600 and then I will leave you with a fun story. 158 00:05:15.600 --> 00:05:18.040 So sales velocity number three is you say, 159 00:05:18.040 --> 00:05:19.840 how many people are you selling per month? 160 00:05:19.840 --> 00:05:20.680 You just ask them, 161 00:05:20.680 --> 00:05:22.360 and you can say like, last three months, what are you averaging? 162 00:05:22.360 --> 00:05:24.240 Let's say they say 10 people per month 163 00:05:24.240 --> 00:05:26.760 is what we're averaging in new sales, all right? 164 00:05:26.760 --> 00:05:28.600 This is important, new sales. 165 00:05:28.600 --> 00:05:31.080 Now, I'll say, what are you doing in revenue? 166 00:05:31.080 --> 00:05:32.480 The reason sales velocity one, 167 00:05:32.480 --> 00:05:34.320 or the conditions under which this one works, 168 00:05:34.320 --> 00:05:37.240 is if the revenue has remained relatively the same. 169 00:05:37.240 --> 00:05:38.520 So for the last three or four months, 170 00:05:38.520 --> 00:05:41.640 let's say they've been at 100,000 ish a month, all right? 171 00:05:41.640 --> 00:05:44.040 Now that they're at a point of stagnation, 172 00:05:44.040 --> 00:05:45.840 or close enough stagnation, 173 00:05:45.840 --> 00:05:47.560 that we can use it for a calculation. 174 00:05:47.560 --> 00:05:49.880 So let's say 100K a month is what they were averaging 175 00:05:49.880 --> 00:05:50.880 in their business, 176 00:05:50.880 --> 00:05:52.120 and they're selling 10 deals a month, 177 00:05:52.120 --> 00:05:53.280 you know, where this is going, 178 00:05:53.280 --> 00:05:55.960 then I can tell them that the rough estimate 179 00:05:55.960 --> 00:05:58.400 for their LTV is gonna be 10K. 180 00:05:58.400 --> 00:06:00.000 And that gives you a good idea, 181 00:06:00.000 --> 00:06:01.600 because if they're just maintaining it this, 182 00:06:01.600 --> 00:06:02.840 then it means they're losing sound, 183 00:06:02.840 --> 00:06:03.680 they're gaining new ones, 184 00:06:03.680 --> 00:06:04.640 and they're staying at that level, 185 00:06:04.640 --> 00:06:07.120 which means they've already hit that point of equilibrium. 186 00:06:07.120 --> 00:06:10.320 And so all of the thing with LTV is the relationship 187 00:06:10.320 --> 00:06:13.520 between sales velocity and how much a client's worth, right? 188 00:06:13.520 --> 00:06:16.120 And so the turn calculation showed a little bit more 189 00:06:16.120 --> 00:06:19.360 depth around pricing and turn to get the LTV, right? 190 00:06:19.360 --> 00:06:21.720 Number, but all of it gets around to answer the simple question, 191 00:06:21.720 --> 00:06:23.040 just how much of a customer worked to us? 192 00:06:23.040 --> 00:06:24.960 And then from there, we can make better decisions. 193 00:06:24.960 --> 00:06:26.800 And so when we're looking at companies, 194 00:06:26.800 --> 00:06:28.600 we wanna see companies with strong LTVs, 195 00:06:28.600 --> 00:06:30.080 or the potential to have strong LTVs, 196 00:06:30.080 --> 00:06:32.240 so that in the future we could spend more 197 00:06:32.240 --> 00:06:34.520 in the acquisition and scale the business, right? 198 00:06:34.520 --> 00:06:36.800 And a lot of times this is one of the weakest points 199 00:06:36.800 --> 00:06:39.200 in companies, especially in that $3 to $10 million range, 200 00:06:39.200 --> 00:06:40.120 is that they don't actually make enough 201 00:06:40.120 --> 00:06:41.880 for customer to start getting squeezed, 202 00:06:41.880 --> 00:06:44.080 which compresses their ability to scale. 203 00:06:44.080 --> 00:06:46.280 And so if you can speak in these terms, 204 00:06:46.280 --> 00:06:48.120 you will impress people, and more importantly, 205 00:06:48.120 --> 00:06:49.000 you will impress yourself, 206 00:06:49.000 --> 00:06:52.120 because you'll have more tools in your entrepreneurial toolbox. 207 00:06:54.920 --> 00:06:55.960 Most of the nation wrote quick, 208 00:06:55.960 --> 00:06:59.000 if you are a business owner that has a big old business 209 00:06:59.000 --> 00:07:01.080 that wants to get to a much bigger business, 210 00:07:01.080 --> 00:07:04.560 going to $50 million plus we would love to talk to you. 211 00:07:04.600 --> 00:07:05.760 And if you like that, 212 00:07:05.760 --> 00:07:08.000 and would like to hear more about it, go to acquisition.com 213 00:07:08.000 --> 00:07:09.440 and you can plan anywhere on the page, 214 00:07:09.440 --> 00:07:11.480 and talk to one of our team and see 215 00:07:11.480 --> 00:07:12.640 if we can help you get there. 216 00:07:15.120 --> 00:07:16.880 I'm gonna go a little deeper on this concept 217 00:07:16.880 --> 00:07:18.680 of using LTV to project. 218 00:07:18.680 --> 00:07:19.840 And I just want you guys to know, 219 00:07:19.840 --> 00:07:21.000 like I'm not an ExcelWiz, 220 00:07:21.000 --> 00:07:21.880 like I had to learn this stuff, 221 00:07:21.880 --> 00:07:24.040 because like I just haven't naturally been that good at it. 222 00:07:24.040 --> 00:07:26.120 So I had to learn the back of NAPC and way of doing business, 223 00:07:26.120 --> 00:07:27.280 and I'll be right with you. 224 00:07:27.280 --> 00:07:29.120 Just about every major business assistant I make, 225 00:07:29.120 --> 00:07:30.280 I just make it on back of NAPC, 226 00:07:30.280 --> 00:07:33.120 because even the most precise calculations can still be done 227 00:07:33.120 --> 00:07:34.520 off of rough data sets. 228 00:07:34.520 --> 00:07:36.640 And so you got to just understand like where your gut is, 229 00:07:36.640 --> 00:07:38.760 and just kind of like the directional math around the stuff. 230 00:07:38.760 --> 00:07:41.160 All right, so let's say we have, 231 00:07:41.160 --> 00:07:42.160 I'm gonna give you two scenarios. 232 00:07:42.160 --> 00:07:44.840 So I'm gonna give you a scenario A, it's an array of bait. 233 00:07:44.840 --> 00:07:46.640 This is important because it will help you make decisions 234 00:07:46.640 --> 00:07:48.400 for your business about what to do to grow. 235 00:07:48.400 --> 00:07:50.800 So let's say we've got a business that's selling 10 people 236 00:07:50.800 --> 00:07:54.840 a month, and they're doing $100,000 per month, 237 00:07:54.840 --> 00:07:59.360 and their price point is $5,000 a month is the price 238 00:07:59.360 --> 00:08:01.440 of what they're selling for these 10 people, right? 239 00:08:01.440 --> 00:08:04.120 And let's say their turn is 20%. 240 00:08:04.120 --> 00:08:07.680 All right, and let's say we have the same ones, 241 00:08:07.680 --> 00:08:09.680 so we have new sales and say it's 10, 242 00:08:09.680 --> 00:08:11.640 let's say price points $5,000 a month, 243 00:08:11.640 --> 00:08:15.960 and let's say that they're doing $500,000 per month, 244 00:08:15.960 --> 00:08:18.400 and their turn is 20%. 245 00:08:18.400 --> 00:08:21.680 All right, now let's see the difference 246 00:08:21.680 --> 00:08:23.360 between these two scenarios. 247 00:08:23.360 --> 00:08:26.320 All right, so if we have 10 clients per month, 248 00:08:26.320 --> 00:08:28.600 and they're selling at $5,000, right? 249 00:08:28.600 --> 00:08:30.560 And we know a turn is 20%, 250 00:08:30.560 --> 00:08:31.680 then what do we have to figure out 251 00:08:31.680 --> 00:08:33.400 if to figure out the lifetime value, right? 252 00:08:33.400 --> 00:08:35.640 And so if we take the $5,000 per month, 253 00:08:35.640 --> 00:08:37.240 and we divide it by the 20% turn, 254 00:08:37.240 --> 00:08:41.000 we're gonna have a $25,000 LTV, right? 255 00:08:41.000 --> 00:08:42.760 Right, this makes sense. 256 00:08:42.760 --> 00:08:46.720 Now if we're selling 10 new people a month, right? 257 00:08:46.720 --> 00:08:49.120 Then it means that this business is going to continue 258 00:08:49.120 --> 00:08:53.960 to grow, and it'll slow down at $250,000 per month. 259 00:08:53.960 --> 00:08:56.800 This is a back of napkin way that you can do projections, 260 00:08:56.800 --> 00:08:57.560 right? 261 00:08:57.560 --> 00:08:59.080 So think about it. 262 00:08:59.080 --> 00:09:00.800 If we have 10 new clients, 263 00:09:00.800 --> 00:09:02.080 and they're selling at $5,000, 264 00:09:02.080 --> 00:09:03.520 we're adding $50,000 a month, 265 00:09:03.520 --> 00:09:05.920 but we're also losing 20%. 266 00:09:05.920 --> 00:09:08.600 And so as we, the first month will make 50. 267 00:09:08.600 --> 00:09:11.600 The next month will do 50 plus 40, right? 268 00:09:11.600 --> 00:09:13.760 The next month will do 50 plus 40 plus 30, right? 269 00:09:13.760 --> 00:09:15.600 And so it continues towards this asymptote, 270 00:09:15.600 --> 00:09:16.640 which means it approaches a number, 271 00:09:16.640 --> 00:09:17.960 but it doesn't actually hit it. 272 00:09:17.960 --> 00:09:20.840 So 250, 250,000 is the asymptote, right? 273 00:09:20.840 --> 00:09:22.160 At that point, we'd have to change something 274 00:09:22.160 --> 00:09:23.160 that we have to change the price. 275 00:09:23.160 --> 00:09:24.560 We have to change terms, the turn, 276 00:09:24.560 --> 00:09:27.240 or we'd have to change the number of new sales 277 00:09:27.240 --> 00:09:29.240 that are happening in order to grow this business, right? 278 00:09:29.240 --> 00:09:31.360 Now, if I'm talking to somebody here, 279 00:09:31.360 --> 00:09:33.200 or you are that person there, 280 00:09:33.200 --> 00:09:35.080 then I know that this thing is growing, 281 00:09:35.080 --> 00:09:36.400 which is great, even if we change something, 282 00:09:36.400 --> 00:09:37.800 the business is going to continue to grow. 283 00:09:37.800 --> 00:09:39.160 Awesome, right? 284 00:09:39.160 --> 00:09:41.000 Now, here's the flip side. 285 00:09:41.000 --> 00:09:43.280 Let's say we have that same scenario, 10, 5, 286 00:09:43.280 --> 00:09:45.720 except the only difference here is it's at $500,000 a month, 287 00:09:45.720 --> 00:09:46.400 right? 288 00:09:46.400 --> 00:09:49.720 Well, if we know that this thing is going to cap out, right? 289 00:09:49.720 --> 00:09:52.480 At $250,000, so it's going to drop dramatically 290 00:09:52.480 --> 00:09:55.040 in the beginning, and then it's going to even out at $250,000. 291 00:09:55.040 --> 00:09:57.000 So if I'm talking to this business, 292 00:09:57.000 --> 00:09:59.720 then I know that they're at $500 today, 293 00:09:59.720 --> 00:10:01.800 and this guy's at $100,000 today, 294 00:10:01.800 --> 00:10:04.280 but they're both going towards $250,000 295 00:10:04.280 --> 00:10:05.680 because that is the reality of the business. 296 00:10:05.680 --> 00:10:08.000 So if you're selling 10 a month at $5K, 297 00:10:08.000 --> 00:10:10.560 with 20% turn, your business does $250,000. 298 00:10:10.560 --> 00:10:11.880 That is what I want you to take away with this, 299 00:10:11.880 --> 00:10:13.640 is that you will know and understand 300 00:10:13.640 --> 00:10:16.000 what your cap rate or your hypothetical maxes 301 00:10:16.000 --> 00:10:18.960 for your business simply by doing the math, right? 302 00:10:18.960 --> 00:10:21.520 And so you'll know if you have the capacity to grow, 303 00:10:21.520 --> 00:10:23.600 you are on a shrinking curve, 304 00:10:23.600 --> 00:10:27.200 or which common is your in scenario C, right? 305 00:10:27.200 --> 00:10:30.600 Which is your at $250,000 a month, 306 00:10:30.600 --> 00:10:34.120 you're selling 10 people per month at $5K per month, 307 00:10:34.120 --> 00:10:35.520 and your turn is 20%. 308 00:10:35.520 --> 00:10:37.520 And you're stagnant like this, 309 00:10:37.520 --> 00:10:41.440 which means that one of these things must change. 310 00:10:41.440 --> 00:10:43.480 We either have to sell more people, 311 00:10:43.480 --> 00:10:44.840 we've got to change the price, 312 00:10:44.840 --> 00:10:46.560 we've got to add some zeros to the price, 313 00:10:46.560 --> 00:10:48.360 or we have to fix the churn. 314 00:10:48.360 --> 00:10:50.320 Now here's where it's kind of interesting. 315 00:10:50.320 --> 00:10:52.440 If we can fix the churn of this business, 316 00:10:52.440 --> 00:10:56.480 let's say we just get it from 20% to 10% turn, 317 00:10:56.480 --> 00:10:58.600 doesn't seem like it's a big difference, does it? 318 00:10:58.600 --> 00:11:00.160 It's a hell of a difference. 319 00:11:00.160 --> 00:11:01.800 And so if you're thinking about the levers 320 00:11:01.800 --> 00:11:02.640 that you're going to pull in your business, 321 00:11:02.640 --> 00:11:03.920 you could say, all right, 322 00:11:03.920 --> 00:11:05.840 if I wanted to get to, let's say, a million a month, 323 00:11:05.840 --> 00:11:08.080 which is probably common for somebody who's at this stage, right? 324 00:11:08.080 --> 00:11:08.960 They want to get to a million a month, 325 00:11:08.960 --> 00:11:10.200 that's their next objective. 326 00:11:10.200 --> 00:11:12.280 Well, let's talk about the ways they can get there. 327 00:11:12.280 --> 00:11:13.960 All right, scenario number one, 328 00:11:13.960 --> 00:11:14.880 to get to a million a month, 329 00:11:14.880 --> 00:11:16.880 we could start selling 40 people a month, right? 330 00:11:16.880 --> 00:11:17.720 And change nothing else. 331 00:11:17.720 --> 00:11:19.400 We start selling 40 people a month, 332 00:11:19.400 --> 00:11:22.040 equals 1 million per month. 333 00:11:22.040 --> 00:11:24.800 All right, because we just 4xed this number. 334 00:11:24.800 --> 00:11:27.800 The second way we can get to a million dollars a month 335 00:11:27.800 --> 00:11:29.520 is we could 4x this price. 336 00:11:29.520 --> 00:11:32.800 We start selling 20K per month, right? 337 00:11:32.800 --> 00:11:33.880 With the same number of sales. 338 00:11:33.880 --> 00:11:35.040 And now get us to a million a month, 339 00:11:35.040 --> 00:11:37.000 assuming churn stays the same. 340 00:11:37.000 --> 00:11:41.240 The third scenario is that we would reduce churn to 5%. 341 00:11:41.240 --> 00:11:42.760 And change nothing else. 342 00:11:42.760 --> 00:11:45.000 Which of these seems easiest? 343 00:11:45.000 --> 00:11:46.920 Well, 4xing price might be difficult, right? 344 00:11:46.920 --> 00:11:49.600 That might be, represents a serious risk 345 00:11:50.440 --> 00:11:52.400 that the value exchange might not be there, right? 346 00:11:52.400 --> 00:11:56.040 And so you probably not choose this guy. 347 00:11:56.040 --> 00:11:58.800 This one probably wouldn't be the first bet, right? 348 00:11:58.800 --> 00:12:00.640 So then you're pretty much left with, 349 00:12:01.680 --> 00:12:04.520 I'm going to either 4x the number of sales, 350 00:12:04.520 --> 00:12:05.920 which means that you're gonna spend more money on ads 351 00:12:05.920 --> 00:12:06.840 or I gotta do more reach outs, 352 00:12:06.840 --> 00:12:08.400 or I gotta do more posts, or get more affiliates, 353 00:12:08.400 --> 00:12:10.320 or get more word of mouth, whatever, right? 354 00:12:10.320 --> 00:12:13.520 Or I gotta work on my back end and reduce churn. 355 00:12:13.520 --> 00:12:15.960 Here's the interesting tidbit. 356 00:12:15.960 --> 00:12:18.120 It's easier to fix churn, 357 00:12:18.160 --> 00:12:22.280 and then all of a sudden, you're at four million a month. 358 00:12:22.280 --> 00:12:24.080 This is why business is fun. 359 00:12:24.080 --> 00:12:27.200 And so that is how we approach business problems 360 00:12:27.200 --> 00:12:28.040 and acquisitions.com. 361 00:12:28.040 --> 00:12:29.240 It's like, okay, what are the biggest levers 362 00:12:29.240 --> 00:12:31.600 that we can use to transform this business 363 00:12:31.600 --> 00:12:34.120 using the biggest rocks that we have available to us? 364 00:12:34.120 --> 00:12:35.560 I think it's important to think through these business 365 00:12:35.560 --> 00:12:37.160 problems strategically. 366 00:12:37.160 --> 00:12:39.080 So you can think, which of these levers 367 00:12:39.080 --> 00:12:40.720 can I pull that as the highest likelihood? 368 00:12:40.720 --> 00:12:42.440 And here's the problem if you do this in a different direction. 369 00:12:42.440 --> 00:12:44.640 Let's say you 4x the sales, you get to 40 a month, right? 370 00:12:44.640 --> 00:12:45.560 You're gonna build infrastructure, 371 00:12:45.560 --> 00:12:46.400 you're gonna know this other stuff, 372 00:12:46.400 --> 00:12:49.240 the problem is you might have built infrastructure too quickly 373 00:12:49.240 --> 00:12:50.640 and the people that you hire suck 374 00:12:50.640 --> 00:12:52.400 and then you can't get the churn down, right? 375 00:12:52.400 --> 00:12:55.160 And then you also can't fix things properly. 376 00:12:55.160 --> 00:12:57.560 And so you basically feel like you have to keep selling, 377 00:12:57.560 --> 00:12:59.120 to keep just keep the business afloat, 378 00:12:59.120 --> 00:13:00.800 even though you know that you have this 20% churn 379 00:13:00.800 --> 00:13:02.440 which is killing your business, right? 380 00:13:02.440 --> 00:13:04.840 And so in order to make this thing a sellable business 381 00:13:04.840 --> 00:13:07.040 or have a business of value or enterprise value, 382 00:13:07.040 --> 00:13:08.200 is we have to fix the product. 383 00:13:08.200 --> 00:13:09.480 We have to fix the client experience 384 00:13:09.480 --> 00:13:12.880 that people actually want to continue to pay for this thing. 385 00:13:12.880 --> 00:13:14.480 And so this is how you can think strategically 386 00:13:14.760 --> 00:13:18.080 if you fix the backend first, then guess what happens? 387 00:13:18.080 --> 00:13:19.560 Your LTV quadrupled. 388 00:13:19.560 --> 00:13:21.440 Now you can go and spend whatever you want 389 00:13:21.440 --> 00:13:23.360 in the acquisition and still be profitable. 390 00:13:23.360 --> 00:13:25.200 Whereas in this scenario, 391 00:13:25.200 --> 00:13:27.360 you probably have to compress your margins 392 00:13:27.360 --> 00:13:29.720 because usually when you increase acquisition margin 393 00:13:29.720 --> 00:13:31.960 to get compressed, but you already compressed them, 394 00:13:31.960 --> 00:13:33.520 right, like you didn't expand them to begin with. 395 00:13:33.520 --> 00:13:35.200 So let's say you were at a 30% margin 396 00:13:35.200 --> 00:13:37.360 and you 4x your sales, now you're at a 10% margin. 397 00:13:37.360 --> 00:13:38.760 That sucks, right? 398 00:13:38.760 --> 00:13:40.560 And so what we wanna do is we wanna expand the margin, 399 00:13:40.560 --> 00:13:42.760 expand the lifetime gross profit per customer 400 00:13:42.760 --> 00:13:44.400 by extending the LTV through turn 401 00:13:44.400 --> 00:13:45.880 and creating a better experience, 402 00:13:45.880 --> 00:13:47.520 better product, better product market match. 403 00:13:47.520 --> 00:13:48.880 And then at that point, 404 00:13:48.880 --> 00:13:51.840 then you can open up the opportunity to scale like crazy.