The Mathematics of Business, Explained | Ep 990

I've been a business for 14 years. I position.com, our portfolio, this over $250 million per year, nine weeks ago, just at $106 million in sales alone, making the Guinness fastest-selling non-fiction book of all time. We doubled the formal record. And so that is just my credibility for what I'm about to share with you, which is 12 of the most important kind of rules of thumb that I've learned to picked up along the way in my business career that you can use to analyze your business to know where you are versus where you could or should be whether this is a problem to solve or something that you just need to manage a pen attention to. And so this will help you allocate where you're spending your time within the business with a clear yes-no answer of "Am I doing a good job or not?" So let's start off with the first one. The first one is close rates versus pricing. So if you sell people's stuff, now this would be specifically for who sells with a salesperson person or a salesman online, so on the phones, or zoom if that's how you fancy it. I want to kind of give you kind of a tier ladder list to think through in terms of rules of thumb. And so the reason that there's a relationship between obviously pricing close rate is that if you lower the price, we know or hold supply demand curves, if you lower price, demand goes up, etc. The idea is if you're closing an 80% or more in whatever you sell. So four and a five people you talk to buy your thing. You were typically underpriced by three to four X. That might sound mind-blowing to you, but that is just the data that I've again, rules of thumb, that I've selected over many years of business. Now underneath of that, let's say that your close rate isn't necessarily over 80% but let's say 60 to 80. So you close in between, you know, three and four out of five who are there. You're probably underpriced by between two and three X. So if you're currently charging 100, you might definitely consider going to 200 and you might have a 250 or 300 in you and you'd be able to make more money. Now the next tier above that is between 1560%. So as we get close, you'll notice that the the jumps compress. If you're between 1560%, typically you're underpriced by one and a half to two X. So that 100 dollar price point should probably be one and a half. So 150 or 200. Now after between 40 and 50% close rates, you're probably between 1.25 to 1.5 X underpriced, meaning now you should be able to 125 or consider 150 as a upon a price point. Now if you're like, okay, between I'm at 35%. Well, you're between 30 and 40%, which for me is appropriately priced under the assumption, you have all of the solid mechanisms in place to educate a consumer prior to the purchase so that you're not creating a pitch or a spiel. Instead, they've already consumed all of this stuff front of the pitch and then the entire close calls about personalization helping them make the decision. That is appropriately designed sales motion. If you have that sales motion and you were closing 35%, you're appropriately priced. Now sometimes people have that close rate, but they don't have any of that stuff. And in those conditions, then you still probably have a double or triple on your price if you set a proper sales motion in place. Now if you're below 30%. So that means that less than one out of three people who you talk to buy, then you either have an avatar issue, you're selling to the wrong person, you have a sales motion issue. And I fixed those two first forever considering lowering price because it almost always is the thing that the sales team might consider wanting to do if you have a bad culture under sales team or an entrepreneur who's afraid, but more realistically, raising prices is almost always the direction that businesses go in with one clear exception, which is if you have a business that has unlimited scale, let's say you sell software product. That pricing is going to be that pricing decision is going to be incredibly important to you because it balances two of the strongest influencers on the value of your company, which is going to be if you lower the price, it will also typically increase growth. And so you've got your gross margin, which is what the price dictates and also the growth as a result. So if you have these two things, then you lower the price growth rate goes up. If you raise the price, gross margin goes up, but growth rate goes down. And so the idea is we want to maximize both those things. Now that's only for SaaS companies to probably like five person here for everybody else. That is kind of my point here, which is that you probably have an unskilled business, which 80% of businesses are unskilled when you're service based. And in those conditions, there's only one way you go in service, which is up because if you play it out long enough, you get good, you get enough demand because you're good. You can't service everybody. So you change your chart, you go up, you go up in price and then around and around you go. And the fast you spend that loop to go up in price, the more you will progress in business because your gross margins will go up, your reputation will go up, you'll be able to hire better talent because you can pay them now and it becomes a virtuous cycle. Versus the vicious cycle of trying to serve more people and pay less, having lower gross margins, hiring worse people, having worse customers at lower prices and around and around you go into the toilet. So that is the end end. I'll be all that is the pricing ladder that I use between price and close rate, which brings up rule of thumb number two. That's even a cat. So you'll notice a lot of these are relationships between numbers and the reason that's important is it's not like, oh, your price should be this. That would be ridiculous. Every business is different. But when we take two different pieces of the business, which is typically paired or in theoretical in nature. So like example, this would be like speed and quality. These are things that are going to be ratios. So you want to settle as many support takes as you can, but you want to make sure that these support tickets are done right. If you cleaned buildings, it would be I want my cleaners to clean as many places as they can. As long as we still get five star reviews, we still get we still get retention, we still go for all. So it's always going to be relationships between two things that are paired with create rules of thumb. And again, these are not bridges done. These are rules of thumb. So let's get this back on. I'll see you in the cat. So for those, you know, no, lifetime value, how much cost we spend? We can how much gross profit make over the entire lifetime of the customer? Cat is cost getting the customer the door. So in plain speak, that's how much money does it cost you to make more money. Cat is how much money costs you life numbers profit or less than value. It's how much you make a very traditional rule of thumb here in the software world was three to one. And this has been you know, pushed all over the internet. And many businesses took that because all these big tech giants and very, you know, huge companies CEOs talking about three to one as though it's a rule of law. And I want to say it is true under specific conditions, which only apply to like five percent of businesses. So let me give you the other scenarios and what I consider to be ideal for that. So three to one. And this relates to I don't have anything drawn. I'll draw three to the software for six. So let's imagine. We'll go over right camera. Okay. You guys doing this? All right. So we have our attraction, right? How we get people in the door? That's number one. We have our conversion, which is how do we actually get them to give us money? Number two. And then number three, we have our delivery. So if we were to use a binary scale of a zero or one zero or one zero or one, then we say if we have zero, basically, of unlimited scale, I put zero operational drag for attraction, conversion, and delivery, what is that? That's probably a SaaS product, right? You can run ads to a check out page and then the SaaS or the software does the delivery, right? All the live zeros all across. And so for that, when you have all zeros, the reader one between how much it cost you to get a customer and how much you make is an appropriate ratio. But one of these three things includes human. So let's give a simple example. You run ads to check out page and then you have somebody who does delivery. You have a human being who does deliver. Well, as soon as that occurs or said differently, maybe you run ads to a salesperson and then you have some sort of lighter touch delivery on the back end. In any of these scenarios, I want to now have six to one. Sorry, this is a one. I want to have six to one. Now, why would I double this? So let me explain. As soon as you add a human in the loop, as soon as you're out of human to the system, you're going to have lumpiness or inconsistency. So what I mean by that? If let's use the salesperson example, you're running ads to a salesperson. And as soon as you get to a certain part where you've capped that salesperson counter, what do you have to do? You have to hire another salesperson. And what happens when you hire a new salesperson? That person's not going to be as good as the main person, especially right off the bat and maybe even ever. And so we have to build into the business padding so that we can incur the cost of treating somebody up and also having them suck because if we're at six to one with our one guy around that if we were at three to one with one guy selling as soon as the next guy comes in, we're below three to one. Right. And so we have to be at six to one so that when that next person comes in, we have some we have some cushion, you know, a cushion for the push in, if you will, that that gives us again padding. I'm teaching padding. So you're probably here padding a bunch of times, but that's one of this. Now let's say that you've got two of these three. So now let's say we're we're running ads and we have a we have a manual person who's taking the phone call closing and then delivery is also service. This is honestly, this is many of you guys is that you were in service businesses and this is like this is what it is. Okay. When I'm in this situation, I want nine to one. Now the reason this is so difficult for people to wrap their heads around is that most people want you scale when their business model has not been nailed yet. And so that's why we say nail it, then scale it. And so people get ahead of their skis. They over expand they bring on, you know, the try to open more locations or bring on more reps too fast because their ego is tied to the number rather than looking at the fundamental economics of their business and saying, is this ready to scale? Because if I had the pick of of like I would rather scare really fast with three years and then realize the businesses broken or spend three years just nailing all my nailing the model, getting all the metrics right and then scaling it. I would obviously pick the sector one, but the thing is is people, if I say that to you, most people would be like, well, of course I pick the second one, but people don't behave that way. And so what you say you would do versus what you actually do are typically very different. And so because now I have two humans in the, I'm going to have inefficiencies on delivery when I bring in a new rep or a new technician or new whatever, it was not going to be as good, not as not as effective as the other people. I got to be able to eat that. If I have a bad salesperson, when they come in, I'm going to have to be able to eat that. And so now I got to be at nine to one to have the cushion to scale. And then finally, along the same line of thinking, if I have three people all the way through, I've got humans who are doing the attraction, humans who are doing the conversion and humans who are doing the delivery, then I want to be at 12 to one. All right. I want to put this in perspective for you guys. One of the gifts that I can hopefully give is frame shifts in the change of perspective. So we know on the chat, the first year of gym launch, when I started running ads, okay? So we had automated here. And I would say we were like probably a point five here. It has half media, but we had half kind of like some support reps that help with tech stuff. And then this was human based. All right. I'm going to say I'll see what you think my else you did a cat creation was. Let me know in the chat. Five to one, ten to one, four to one, six to one. What do you guys? Let me see some numbs. Let me see some digits, six to one, four, one, nine to one, two to one, thirty one, Liam, nice, thirty to one, three to one, fifteen to one. I appreciate the belief that our hundred one, you crazy mofa. Ronald, five to one, twenty five to one, twenty to one. You guys want to go? I'll turn. The first year of gym launch, my LTVCAC was a hundred to one. I spent a hundred grand in a ten million. Why? Recommend. It was wild, wild times, okay? Now, what? How is that possible? Like how's that possible? Most of the money that I've made in my life has happened during these distinct windows of opportunity where there was huge arbitrage or to what it cost me to get a customer and what a customer was worth to me. And I've had that happen four times in my life and each of those times have been above thirty to one. And so the reason I'm so adamant about this is that I know because I've had it happen that you have to just keep beating up the system. You have to keep beating the money model, which is why I made the book money models. You have to keep ranking on this thing until eventually you crack through that lever. And so you see twelve people like that's crazy. I'm like, this is the minimum. And again, this is if you want to scale big, you can absolutely run a business that does six to one and you know, make a million bucks a year, come in, bucks a year, like you can do that. I'm sick. If you want to see what the biggest companies in the world have, they have absurd LTVCAC. Now what is there's only two ways to improve that ratio, right? One is you drive CAC down to zero because there's only two long term money strategies in business have extremely low CAC, which means you build massive brand A or B, you have a product that is viral. There's the two types of things that create really big companies on the cost side. On the other hand, you have the extremely high LTV side. So look at the company. I'll give you an example of each. So Facebook is a company that wasn't, oh, we have a limited LTV. Now they have a business where CAC approached zero. And so if you get CAC to zero, you can creatively get eight billion people for zero dollars. And when you do that, even if you make a couple hundred bucks a year on them, you still make a lot of money. On the other hand, you might have a company that's like sales force, right? And a company like that, they might make a million dollars or five million dollars per year on enterprise level customer. Now that customer isn't coming to them for free. Now they do have some brand, of course, that's going to offset some of those CAC costs, but they're still going to be huge costs of getting those customers, especially the large impression worth with contract, they have to bid against other CRMs, etc, etc. And so both of those are big companies. The idea is that you have to know what type of company you're going and you're winning strategy to scale. And so to make this extraordinary LTV to CAC ratios, one of these has to approach zero or infinity. That's the gate. So that's the second rule of thumb. Look at your three steps. Am I zero to one on attraction? If you're like, what's an unskilled version? This would be like, I do manual outreach. That would be human in the loop versus iron ads or any content conversion here would be checkout page is scalable human, uh, phone team or sales team in person. That has a human delivery. If I sell services, I'm going to have humans. If I sell software, I sell media, that's going to not have humans. I sell physical products. For example, that would still not have humans by my definition. That's the idea. I see what your LTV to CAC ratios are. Which brings me to rule number three. That is a span it for rule number three. I think you do. But like, let's not get crazy. Um, I know. Yeah. I messed that one up. Hopefully you're with me. We're a quick. I have a gift for you. This is the $100 million scaling roadmap. It's something that my team and I put 200 plus hours into building and breaking the stages of scaling into 10 steps. All right. And so what we did is we broke down everything that got us basically got us stuck in what we did to break free at each level of the business. And if you'd like to know what product marketing sales, customer service, IT recruiting, human resources and finance look like it. The stage that you're currently at. This is a free gift. So all you have to do is go to aquas.com/roamap. You can plug in your business information. And if you want our help, you want my help to help you break through whatever level of scaling you're at. This is not a promise. I'm just saying I'd love to help. The thank you page you can book and call every month we have a workshop out here at my headquarters. You actually talked to my real team that does does our marketing, does our emails, does our ads, does our copy, does our does our sales, does our finance, does our recruiting. The real people we're doing is at a very high level. And what's really cool about that is that they can typically find and spot what the constraints are in a business like that. And so it's one of the most valuable things that I can possibly do. Obviously, you know, space is limited based on our actual headquarters. But if that's interesting on the thank you page, you can book all no pressure. This is a gift either way. It's absolutely free. Rule of a through is rule of 100. So fundamentally, if you're trying to grow the business, I have never seen a business not grow when they implement the rule of 100 when they're starting out. And to be clear, this works for all levels. So it's either rule of 100 on your first acquisition channel or rule of 100 and ideally for 100 days. So 100 and 100 right. And if you're like, wait, 100 times 100, you're like, you're right. That's 10,000 actions. And what happens when you take 10,000 actions in one specific direction, you tend to get results. And the amount of like screenshots of like content and reach and impressions that I've gotten for people actually tick the box 100 days in a row doing 100 actions. Then they get their first customer. Most people get it by like the third week. But you have to commit to doing 100 days. And it's kind of like the very, the, the idea of like the heart of a missionary versus the mercenary. If to committing your heart, they're going to do 100 days. And then it happens very quickly. If you try to do this for other days to try and prove me wrong, congratulations. You won. You're still not succeeding. Probably not the perspective because it won't change anything in my life. All right. And so where this becomes a symptom that you can recognize in your business is volatility. All right. And I said this applies to all levels. So if you're a bigger business owner, you take the will of 100 and you just apply it to new channels. And so if you're like, we run minute ads, it's a great. Well, we need to just take the same perspective on how we're going to run YouTube ads for Google ads, right? If you're on content side, it's like we make you know, reels awesome. It's like, okay, we do it on this platform. We need to do this on a second platform. If you're doing outreach, you every time you expand into the new platform or medium or channel, you implement the 100 yet again. Now, if you're a smaller business, which most businesses are small by by statistics and reality. Now, if I present business left in a million dollars. So if your business feels feature fan meeting, if you get a sale this week and then there's nothing and there's nothing in the next week you get one in the two more weeks and then one two and then another three weeks of famine, the issue is not that you have quote inconsistent lead flow. It feels inconsistent because the timeline you're measuring on is too small. So if I were to look at it, you over here, if you're the type of business that does a small amount of advertising, you might sell about the same amount of recovery. So we're customers every single year, but that volatility or the perception of volatility is a symptom of insufficient volume. You're not doing enough to get enough out. Now if we expand the time horizon, let's say that we expanded it 30 days and let's say that you on average get three customers a month, okay? 30 days, three customers a month. That means you get one customer for 10 days. And so that means that in 10 days, what we can reverse this into is that there is an amount of advertising that is a career either through. And so through what else? Through outreach, through paid ads, whatever affiliates people referring to, who are partners or centers of influence, if you will, or we're sending you business that in that 10 days, there's enough advertising for one sale to occur. And so the idea is, okay, well, if I can just look at the amount of advertising that I'm doing, probably have hazardly over a 10 day period and then do it deliberately instead of on accident on a daily basis, then I could take what I do in advertising in 10 days and do it in one. And if I do it in one, then I'm going to get the same outcome as doing one sale every 10 and I'll get one sale every day. companies that are doing 30 times more sales than you are typically doing 30 times more advertising than you are. And so I've put this in perspective many I've seen them in because obviously businesses fly out here every week. I've said this in our content. I know a lot of numbers are what businesses are doing at different revenue levels. If I look at a one or two million dollar business and I look at how much content they're putting out just on a pure volume basis. And the thing is is like of course there's quality of content. But the thing is is if if you look at it across all pieces of content with the outliers already baked in that you know that one out of 10 or one out of 100 is going to be super outliers of course the top 1% the top one out of 100 to the top 10% you know one out of 10. With that volume baked in things tended normalize again. So we make whatever it is 450 pieces a content a week right almost 500 for simple math. So we're looking at 30 you know 25 3000 pieces of content per year. And many of the people that are at one billion dollars per doing something in a word of like one a day. And so they're doing 365 and we're doing like 25 or 30 thousand. So we get 9 or 10 times the sorry way we were that's all right that's a thousand times a thousand times the outcome that they are now you can even make the argument that I'm even less efficient than they are but diminishing returns are still returns. Right so like if I do a thousand times more than you but I get a hundred times the outcome. And I think this is the piece that people really mess up is they see diminishing returns and then think oh I should stop because my return per action has gone down rather than thinking I'm still getting more and it's still worth it. And that's the part that I think most people were smaller miss out on the amount of conversation I've had with small business owners were all about optimization. There's nothing wrong with that you just can't have both you can be like I want to optimize it's like fine you can get the most for the least but you're not going to get the most period. And the difference is that the people want the most are the ones who win. Which leads me to your leader response so. For the love of God please call your leads within 60 seconds I don't know how how many times I have to say this across how many videos and it's just like do you hate helping people do you hate having more revenue and more profit in the business would you prefer to pay four times more per customer than you currently are. Because you are like you know what we're going to do so this person just opted in they're like you know what I really want to solve this problem this company looks interesting and then you're on the other side saying let's let them cool off a little bit. They're a little too hot and having you know what I mean like let's make sure they don't make a decision that they would regret you know I don't want them to take that wall it out too fast because that might be unreasonable and so let's let them simmer let's let them marinate for a couple of days and you know what let's let him date around let's let him call some other businesses so that by the time we finally get. If we ever get to them they have a lot more information from different competitors so they can compare the pros and cons of our business and our offering to everyone else so that we can get it a pricing more all the way to the bottom and so when we do that not only are we spending four times as much as we should do a car customer we're also not able to make as much per customer because your close rates will go down on top of that and so will your gross margins and so it's one of those like I think Brian Johnson for blueprint was talking about this. You're like where's your code of this I'll bring it back home. He said he has boiled down like however many years of doing all this research and stuff into one number which is your resting heart right before bed. He said if you show me that number I can see your soul to me I would say else if you to cat could be that number but underneath that number wouldn't be would be your lead response time and the reason for that is like it's how you do one thing is how you do everything and I have some elements that I take take offense to that particular term but I do think that it is a way of doing business. How dedicated to excellence are you right and if you know if you know this has been proven over and over again in business studies and in the real world right saying hey you're going to 4x your sales people think yeah but I can't I can't afford to hire somebody to call my leads in that speed. Well do you think if you had four times the revenue you currently do that you'd be able to afford it with the revenue that you would now make from that person. This is how business works you invest and then you get something back that's how it works but this is the first time I think I framed it the other way around. Look at how much it cost you to get a customer if you divided that by four would that improve your else you get a car ratio. Would that be the thing that you need in order to scale. Do you think that it your leads cost you much might be a factor of the fact that you don't know how to sell. So when I look at rules of thumb it's like well I'm going to tag these areas first because there's huge returns for minimal effort talk about you know maximizing optimizing for the love of God please call you quickly. Are you a little passionate about that all right the spirit moves. I don't take it back. Okay which brings me to rule number five 70% quality utilization. Okay so this is a rule of thumb. When you have more sales people there's another issue that starts to come up which is my sales seems under utilized for their book down. So what's the sweet spot. The reason this is important is because well if you miss it you will. Let me go either stream if you had your sales and completely booked out fully utilized here's two things that happen is a result that are bad. Number one is that your totally conversion will go down you will make more sales because they're booked out for sure absolute will go up but your conversion rates will go down meaning your cat cost to acquire customers will go up. Which is depending on how sensitive your numbers are could be very bad for the business and so. That utilization happens and as a result one people have to start booking out further and further because tomorrow the next day they're all booked out the K5 convenient times so one it's further out and so show rates on further on appointments compared to sooner appointments goes down. Number two show rate on appointments that are inconvenient versus convenient maybe they do it a little sooner but it's still not the time they'd ideally like sure it's good. Number three what happens if a sales guy is making calls all day long what are they not doing they're not doing out that. What are they also not doing they're not following up on the calls they should just they have six cents plus they have some tip ins that they need to do that they just aren't doing because they're all calls today and rightfully so they should be focused on like they should reasonably focus on the leads that are in front of them. But it is your job as the entrepreneur to move their counter better utilize their times you can maximize conversion. Okay so on the other extreme let's say that you have 30% utilization so you know 70% of their calendars empty. The problem with this that I found is that sales team morale can start to drop because they don't really ever get it momentum so if you have like two calls a day like the calls sometimes mean too much and so guys have kind of commission breath they're like I have to close the sale right I'm not going to get paid. And so it's a balance between both this thing so I've found 70% is kind of the sweet spot I don't let it get above 85. I try not to let it drop below 60 and so that's kind of give you a range I would say 70 75 is right around the sweet spot for this and I explain the reasoning what when we see conversion rates as in we get 100 leads we want to maximize the conversion of those leads to the function functionally is what a sales team supposed to do why why you have to see rather than just a check out page. If we want to maximize that converging then we want to give the time we want to give one enough times for the prospect to book soon to enough time for that time to be convenient for them both of these things increase show rates number three we want to have the sales person have enough blank space in their calendar so they can work their pipeline and break people back in and I remember the realization I had around this was we would have high weeks of low weeks with ads in terms of book calendars but our sales remain relatively the same and I was like. How does that work and it was just because what a big wave came in the guys really inefficient and when there was you know a famine if you will there's and more empty calendars the guy squeezed the pipe once it's all like men if we just we just our platforms all the time we would just make all the high week you make so much more money well how do you do that you typically need a higher more so speed and I'll say as a personal know I have yet to make less money by hiring more says. So like when in doubt sales tends to drive business and I also have some belief around the fact and this is most cultures not our shared acquisition but the vast majority of sales cultures guys will get fat and happy they will make enough sales to make whatever that nut is for them that they don't want to work that hard anymore and so I would rather have the guys just below whatever that that amount is so they're always striving they're always squeeze in the pipeline rather than you know they can sell so their goal within the first two weeks and then they take the last two weeks of the month off. And that's where you know much more than hey do I need to see for some questions maybe but more often than not it's like you can just add sales people so that they can squeeze their opportunities better. All right which leads me to rule number six payback period except that's how I feel very aggressive payback so is payment period it's how quickly you can recover the cost of getting a customer now for me ideally I try to do within 30 days so payback period in general is how fast you get the money back. From what a question gets somebody my goal is within 30 days why because just about every business owner at least in America and at least the developer world can typically gain access to a credit card which gives you 30 days of interest free money now the reason that's important is that if you have interest free money that it means that you can grow without money on a pocket and that allows you to have limitless growth if it if I can take a hundred dollars of credit card money which I don't have to pay anything for until the end of the month and I can take that hundred dollars and go get me a customer and at the end of the month make that hundred dollars back then at the end of the month I don't know what anything and I now have a customer. That is the power of this. Now you can repeat that at infinite item, which is laden for lots of times, it's an infinity bill. Let's talk to you. That's not too technical. So the reason that I use that as my as my rule of thumb is for that very practical reason. Now you might think to yourself, well our payback period is 90 days. There's nothing wrong with that. It's the same as like, you know, we had LTV to package a launch of 100 to 100. It didn't stay 100 to 100 when it was 101 the first year, right? And over time it ended being somewhere that you're going to 30 years to one. But the idea, because as you scale more levels of, of infertional, get introduced to the business. And so that will drive down operating margins and that's okay. As long as you have a business that skips now back to payback period. You can I want to shift the perspective on this, which is that like even if you currently spend and get paid back in 90, you should still think to myself like, is there a way? Is there a money model? Is there a setup? Is there a configuration of pricing and products of what I currently have without introducing operational drag or too much operational drag that could pull cash for it? And functionally, this is literally the entire book for money models is about was driving more cash low for now. If you have a business where you're funded from the outside, or be your very large business that has huge capital reserves, you have a huge base of recovery customers, then you can get more aggressive. Of course, right? Like if if you're going to go ahead to head with, you know, Apple, then sure they can they don't need to get their money back in 30 days. I mean, they are a bank at this point like they can they can borrow money from the entire world and fund whatever they want. But for again, everybody who's watching this, most of you guys are bootstrapped. Actually, can we go pull real quick? All right, let's say who here is bootstrapped versus has investors that bootstrapped versus investors. Okay, great. So one out of 25 of you guys, you don't have to worry about the payback period, but you still should, which is all the investor bros now all the guys who have an outside investors, I promise you you will get investors for all thing at the mouth. If you can show that you can get payback period within 30 days number one, number two, if you have payback period when 30 days, guess what you also don't need investors, because you don't need their money to scan, which gives you a huge amount of leverage into when you're getting into your fundraising period. Now that's the one out of 25 for the other 20 out of 25 of you who are bootstrapped business owners, y'all are like me, which is that I like big of allops is what's funding this stuff. And so we have to think are there initiation fees are there set up fees are there is there on boarding process is there on rent is there front end defined program or setup that I can self can I can I bundle in some sort of physical product up front with my services can I sell a bundle of an extended period of time to cash flow day one, can I do a buy one get to can I get them to pay for the last month at front, all of these are different tactical versions of solving for the same problem, which is I want to pull cash forward so I can recover, cacked within that first month, because when that happens, I'm telling you like all of my businesses every single one that's gotten really big, we have been able to recover what it costs us to get a customer in the in the first 30 days. Curie. So strong recommendation on giving all right with that being said, let's go rule number, that's a six there you go rule number seven gross margins so gross margins are wildly misunderstood which is interesting. If you are if you are a business owner, you have to learn the language of business. All right, it is it is for sure. There are different languages, but there's not a huge amount of words you have to know. You might need to know like a hundred terms and think about this as like you were studying for its test, right? Like learning a hundred terms, not that hard to understand it, almost all of them are relationships between two things. That's almost all of these terms are so what is gross margin? It's one word that's a relationship between two things how much you charge and how much it costs you to deliver the thing and the difference between these things is your gross margin to be clear that's not your net profit margin, which is a different ratio right between not necessarily ratio, but the difference between two different reverse, right? But your gross margins are very important because it is what dictates everything else in the business. So we're winding by them. If like your net margins cannot exceed your gross margins, think about that for a moment. If you have if you're like man, I'd love to run a 50% net margin business, that's an amazing goal and I love that goal for you. If your gross margins are 50%, that means that you can have literally no other cost besides the thing you sell in the entire business. You can have any cost of requiring customers. You can have any fixed overhead. You can have any employees that are not specifically in delivery. You can have any added any help. Of course, now the likelihood of you getting to a 50% net margin when you have 50% gross margins is basically zero. And so this is why and traditionally small business orders will undercharge because they sell to their own wallet, right? And they sell to their own wallet in two different ways. They sell to their own wallet because they don't have that much money. And so they feel bad charging other people when they don't have much money to still like, man, I get what it's like to strong. But I think there's nothing wrong with that is just understand the business is not going to grow and they're going to home with people. The other reason they sell to their own wall is that they believe that the service they deliver is not that valuable because they know how to do it. So to quote the Joker, right? My father always told me when you're good at something, right? And so the idea is that like, if you're good at fixing cars, right? You're like, well, it comes naturally. It's not that hard. You got to know where the, you know, it's like, it's what we do is really straightforward to you, to you, but to a customer, we have to sell off the value of what their life would be like if they didn't have this problem solved. That is what we have to charge off of. And when we charge off of those prices, then we create more opportunity for gross margin. Now, here's why this is so important. Let me give you a math example that will blow your mugs. And I always, you know, everyone gets a hard conversation when I say, man, so let's just say a money example. Okay. So let's give you a money example. That'll get you really happy. All right. So let's say that I've got some service that I that I deliver. Okay. Cost me a hundred bucks a month. Okay. That's what it cost me and services in whatever. So if I want to have 80% gross margins, which I said, these are rules of thumb, my rule of thumb, four services is at least 80. Okay. So I want to show you two different scenarios here. So at 80% at 80% this $100, I have to have $500 has to be my price. Okay. At 70% and I have a hundred dollar costs. Oh, who's who can do this math for me? All right. I got to do this. All right. 100 equals 0.7. Julian, you were pre-med. Do it for me. All right. I'll say this. I'll say what does any percent are like? equals $1,000. Where is it? Where? Where? Where? Why do jagged asses keep you as he's a lot? Thank you, gross ones. Is it 350? Is that it? We should we should know this. I feel like as a collective community, we should be able to figure out when 30% okay. So it should be 100 divided by 0.3 is what it should be. So 100 divided by 0.3. Right. It's 330. Thank you. So that would mean that 233 should be 17%. So 233 divided by 333. Correct. Thank you. Okay. So 333. Okay. So look at how big of a difference this is. Right. Between these between these numbers. Look at how like when people are like, oh, why margins are at 60% so I'm close to 80. It's like, bro, we're not even like you're in a different stratosphere. Okay. So let's take this to the natural end. If you have a business, let's say that runs 20% margins at net margins at the end of the year, what you compare yourself, right? If we say, hey, is there a way you think we could go from 70% to 90%? Well, that sounds like it's not that big of a deal. But when you go from 70% to 90, what happens to the actual margin? It double. You make way more money. And sometimes it means a lot more than that because sometimes the income on margin is all margin whereas every dollar revenue up to that point covered cost, right? And so what is our we make $233 here, right? We make $400 here and we make $900 here per customer. Big difference, right? And so when people hear these numbers because these numbers look similar, they think that these are going to be very similar and they are not. And so this is why I'm so adding that 80% is my minimum. I tarry like that's my baseline. And then front like I will not get into a business with less than 80% growth. I won't do it because I know that I then have to run everything else off of this 80, right? So if I want to have a 50% net margin business, I only have 30% left. I got 30% to cover everything else. I got to cover rent. I got to cover admin coverage. Sure, I got to cover marketing on cover sales. I got to cover everything else with just this 30% so I can have 50% left home. Is this ringing? Is this ringing with you guys? Is this making sense? Even if it's a service business, bro, this is four service businesses, not to you in Australia. This is four service business businesses. And this may this is why I like so ideally I like to have I mean, again, this is minimum. And I know this is going to blow your minds here. Like, like, one of the first things we did when we fixed gyms is we made sure the pricing was at least 80% gross margins. That's a service business. So what you're like, well, that's not possible. Of course, it's possible. It's not possible when you saw a commodity. If a customer could look at your thing and somebody down in streets and say, these are about the same, I'll buy the cheaper one. You sell a commoditized service just like you can sell a commoditized product. And so you might have salt and salt and you got FSG salt and whatever, actually, you know, pink humilade. It's salt, right? And so how do we make these two things different? We have to bridge it to pink humilade versus just normal stuff, right? And they charge a premium for that. And so you have to figure out how to reconfigure. If only there were a book written about how to make an offer that's decommoditized so that you could achieve 80% or higher gross margins, that would be amazing, wouldn't it? And for those of you who don't know, I wrote a book on this. It's called $100,000 offers of $27,000 and $5.00 of users you read it. But I want to draw this because this like, if you're trying to figure out what's wrong with your business, it's usually because your margins are off. You're mispriced. But again, sometimes this is the fundamental mathematical problem with the business. But this might really be the symptom of the fact that you have a commoditized offer, a, b, you have a sales process that does it function properly, right? That's the big idea. So if you want to run a time margin business, then you have to run exceptionally high gross margins for whatever it is that you sell. Okay, cool. That math of stuff wasn't. All right, so let's do roll them away. We'll thumb them away if you will. 38 cash collected. So this is an add-on to the 38 payback period. So what is the exact amount of money that I want you to have collected in the 30 days? It's going to be COG, so the cost of delivering cost of goods sold. I'll just write it out. Cost of goods sold. Now the goods sold can be services to you to be clear. So it's cost and goods sold. How much it costs you for the stuff? Plus cost of getting. Cut. Okay, so the cost of getting the customer. And the cost of what are we got them? Heck, we will both those things together. We want whatever we collect to be greater. We want the gross profit of the cash we collect in that first 30 days to be greater than this plus this. The reason this is so magical is that once this occurs, customer comes in, you acquire that customer, and then you have to deliver on that customer. And then that customer pays you back all of that cost and then what can you do? Go get you another customer. That is why it's so magical. And so that is what the whole point of this 30 day cash collect thing is. We want to pull it forward. Cool. Great. Now, many fact-shames, study with Zorro. No, then you fact-sharing it with different margins because you have cost of goods sold. And that's going to be a little different. I would, to be fair, I would still prefer to have a business that has a basic risk rate. But with services for human services, I had that as my rule of thumb. It's that I always want 80% or higher risk margins. Okay. That brings us to rule number 10, which is to functionally rule number nine, but we're calling it 10 because I skipped number and let's just go. Which is, turn your attention. No. I want to only have to acquire customer's wants. The reason that most businesses cannot get big is because they are always filling the leaky bucket. Now you've heard this terminology before. But think about how difficult it is to acquire a customer. It's a lot of work, right? And to go through that entire process, only to lose them to have to go get another one is exhausted. And so you want to be, this is John Paul de Zorio. It's the quote from who's it. You don't want to be in the sales business. You want to be in the reselling business. And so what you remember by that is how do we get customers to just buy again and again? And again, which just come down to product, primarily and then brand secondarily. And so the idea here is that for your business to be a significantly more valuable, but be way more fun to run, you want to keep the customers you have. And so when you're a small business owner, you're typically just barely figuring out what's going on. And so what happens is people will typically try to scale too fast before they'd actually figured out revenue retention and shurn. And so what are, quote, good benchmarks? Well, good benchmarks for anything B to B is you probably want to be above 80%. In terms of retention annually. So that means that if I get 100 customers, Jan one, right? This is January one. Let's say 2025. Jan one, 2026. I want to make sure that I have at least 80 of these customers. Now, this is where people get confused. Let's say that they grow because they get better at marketing sales throughout the year. They come January 26. And let's say they're at 160 customers. Is how many they have? They think, Oh, well, I definitely retained all 100 customers. And I also got 60 more. We're looking at of the original 100. How many of them made it to here? This is the issue. Now, you can take whatever annual retention is. And then you can basically reverse engineer into what your lifetime value of customers. So if you have 50% annual retention, then you can take whatever someone pays over a year. Let's use simple math and say someone pays a hundred dollars per year. If you have 50% annual retention, then it means that you can basically double it. So you divide it by 50%. equals 200 dollars is what you're going to make from a customer. Now, here's where the sketch really wild. Let's say that you have 80% annual retention. It doesn't seem like that much different, right? It's only 30%. What is it actually different from a math perspective? It means that you're going to get functionally four turns five turns five turns. Because every year you're going to lose 20%. And so simple math on that is around the back of napkin. That is about five hundred dollars. Come on, say these a lot. Much of the needle. All right. And so think about two businesses. And this is why this is so important. The cost of getting customers between different businesses is typically very commoditized. So CAC in an industry is a commodity. Think about where that is as a sentence. If there's two social media marketing agencies that both sell generically similar services of course, we don't want to do that. But this is how the industry by and large works. If you have two different businesses that are selling the same relative to the same thing, the cost of getting customers there is typically about the same. Here is where one business can become five, ten, a hundred times for valuable. Is that those customers are worth five, ten, a hundred times more to the other business. And so they are able to to play a huge arbitrage game so they can spend way more money in the acquisition than the business that only has called it 50% retention. Right. This guy is dating two and a half times more. Puck, Mr. Marr. than the first company. Even though maybe the cost of getting the customer in both these scenarios might be the same. This is where the huge amount of alpha or kind of arbitrage above what market could get in terms of improving a business. And so right now, if you don't know how many customers say with you every year, definitely worth figuring out. And so that is my rule of thumb is that I target. And so for each of these numbers I'm sharing them is like, this is my target. This is what I want to get to. If I don't have that, I see this is a huge problem in the business. And I have to go fix it. Otherwise, I just know that I'm going to create a scale problems. Right. When you scale problems, they just get me and you're ugly and they have more faces on them. Right. You do not want to do that. And this is where most people's ego gets tied on it, which is why most entrepreneurs can't scale. So rule number 11. What is a good rule of thumb for how many people prepay? So a lot of you guys, some of you guys follow my stuff. I'm obviously a big fan of pulling cash forward because of all the reasons I already mentioned. What is if someone prepays for a year? No one can sure if you prepay. Right. You're okay for the year. Can't really turn out. Right. What benefits happen when you prepay? Well, if you prepay, you get all that cash today. If you get all the cash today, we can use it. Do that cash. Go get more customers. Right. Think about this. Everybody here should at least give a 10% discount for getting paid full today. Why? Because the value of money today is typically at least, or at least that say value that money in a year will be worth 10% more. At minimum, you could take the money, put it in the darts stock market, prep, and the way to year, and it would be worth 10% more. And so like at minimum, that is the amount that I'm willing to give to pull cash forward. All right. Now, what percentages rule of thumb should you expect? So let me give you a couple. So if you have a like a buy 10 get two type deal, like you pay for 10 months and you get, you get two for free, you can expect someone in the neighborhood of like 15 to 20% of people to take that off. All right. If you give discounts and access of that, and you give bonuses for people prepaying. And so the way I think about that is three ways you can do that. How can I, Calvin, I deliver something to them faster? How can I make it less risky? And then how can I make it easier? So if I say, hey, you can prepay. And if you prepay, it's good for life. Wow. That sounds nice. Hey, if you prepay, you'll get a dedicated concierge versus being in group. Hey, if you prepay, I'll also add in our guarantee. We're all double the length of our guarantee. Right. So these are some of the things that you can manipulate in terms of variables. cash forward. Now, when you have a moderate discount, less one or more of those kind of like insularity benefits that I just rattled off, you should expect 30 to 40% of people to prepay. That's a monster difference in terms of cash forward. Now, simply off-root that for many of you, if you're not doing it, will be cash for it. Now, a core layer is whether you have a third party financing company. Now, this is directly from a firm. So, I know a lot of the high-ups at a firm, not a lot. I just know a very high-up at a firm, I'll say that. I have a little bit. And the metrics that they call is a 35% increase in sales boomerang, kind of interesting. So, not only does that money come forward, if you have good financing, you could also increase sales overall. People who would not have been able to buy are now willing to because they have more convenient ways of paying. So, that kind of gives you a double whammy of, oh, people who wouldn't buy did. And they went from not buying to me having a lot of cash today, which is why having very good financing partners can be a huge game changer for a business. Now, I'll put this little caveat in place, which is that financing will not save your business. If your food stops at your restaurant, financing it will just get more people to find out that the food stops faster. All right. So, I've never seen a business get saved by this. But I have seen businesses grow for sure by making some of these deals and putting them in place. Now, let me give you a couple of payment structures that you can use. That have worked really well for me. So, right off the bat, if you just say like, hey, people go in a month, it's like, that's a way of doing things. But I would prefer to sell durations and then say, cool, prepay and get guarantee, priority and concierge, right? Let's pull it forward. If they still can, I say, great, let's split it. Half now, half in a month. Now, this is a little, little pro tip on this. I'm late, sell three months or six months of stuff. There's no need for me to wait three to six months to get paid. I still don't get paid now and in 30 days because they got the money. I might as well ask, right? Where's they could say is no. After they say no to two, I say, great, let's go for a third payment. Again, one, two, three, even if it's a six month or 12 month, I want to pull that cash forward. Now, a little pro tip of getting is always asked what if it's to, if you're talking to a wagie, ask them when they get paid and then align the payments on those days. If you're not talking to a wagie, you can ask when they have the, the majority of their deposits hit when they are the most cash, flush, cash flush in the business. And then you can set it for those dates. You do not need to coordinate payments with your delivery. Now, one of my favorite methods of payment so that I can pull cash forward is something that came out of the depression in the 1930s, which is something called Leo. It might be something as old as time. I'm sure it was in 2000 BC, but I just know from the, for the pressure because of course, I live there at that time. It's up. The way it works is simple. You start paying now. And when you finish paying, you get very stressful. So you can, I remember, and I remember the first time I did this. I had, I was selling, this is with Alan. I was selling, we had this big onboarding because what Alan was hired, that kind of enterprise, so we would sell agencies. I was 25,000 dollars a white label and then they would use it kind of as their own operating system. And so it cost 25 grand to kind of like get onboard it. And so I would do two, two agencies at a time. We'd use a full day onboarding with me and my team and we'd help them get set up, walking through everything, etc. Right? No. I remember having two partners who were on the phone, either like 25 grand, they were like, that's awesome. And then they said, can we split into payments that I said, sure. And they said, well, how many payments have I split up to? And I said, as many as you want. And they're like, oh, amazing. We'll just fan, you know, we'll just do two thousand bucks a month. And we'll, we'll pay it off, you know, this year. And I said, okay, cool. So we'll just sit your onboarding for a year from now. And they're like, oh, we got to like pay before we come in. And I was like, yeah. And then this is why I was such a reinforcing moment for me. They just said, oh, okay, well, we'll do it now half in a month. And we'll be out next month. And so what's cool about layaway is that when people understand that like the faster they pay, the faster they get, they are now incentivized to pay it off as fast as possible, rather than you trying to pull it forward, which is why I'm such a big fan of layaway as a payment option. In addition to that, collections become significantly easier because they haven't done anything yet. And so they've already decided they want this thing. I also like layaway because people have anticipation. Think of the last thing. Maybe you were kidding me to this, but like, I remember there was a pair of Oakley sunglasses. I thought were the coolest ones. You might have remembered them. They were an X-Men Cyclops and that like orange that orange pair. I think I was like, I don't know, young when that came out. And I thought he looked like the coolest guy ever. So I saved up for a whole summer doing chores to buy 160 dollars on the glasses, right, which is absurd. But I think they were 120 or 160 dollars at the time, inflation. And they were like the hottest, coolest sunglasses. As always, I saved up the money. I get the sunglasses. And I remember the anticipation of being able to get the sunglasses at the end of the summer was better than the sunglasses ever were. In fact, it was so good. I literally never wore them because I was so afraid of losing them because I had spent so long to save it, which was also a very less than like, sometimes you got to just learn to spend money in a jojus bed. A different thing for a different time. But that being said, you also benefit from that customer anticipation when you set up the payment this way. So there's a lot of benefits to doing this way. And the biggest one of all, you risk nothing. They pay before you deliver anything. And so you get to have the cash before you have to risk deliver it. So those are all different ways that you can start a cash flow in the business. I'll give you a, let's see here. Do I have to have any more notes that I wanted to go over? Yeah, I was going to give you guys some rules of thumbs for like different tonic conversion metrics. So one of the simple ones would be like, if you're doing these things are Sony variations. So it's like, if you're closing off of metal leads for in person, it's like, you should close 10% of the leads that you have. So you get 100 leads for it in person. Service business, you should close about 10%. If you're above that, amazing, if you're below that, probably a so opportunity for improvement. If you're closing off cold webinar leads, if you're selling to broader markets, you're probably looking at two to three percent conversion of those leads as in webinar opt-ins to sales. If you are a little bit more niche, then they have to go up to 5% of leads. The craziest I've ever seen. And like, again, that's leads, not shows. Right. Well, people were there during the offer. There's just overall like you had 100 people opt-in for webinar. All right. If you have a salesperson that's in person, right? If you're going to someone's home, again, my rule of thumb with salespeople in general with a proper sales process is 35%. I would like them to close at least one out of three of the prospects that they're getting touch with. Typically, if it's hard in that, I will raise price. I'm going to go below that. Then I will fix the process before I even consider lowering the price. Web pages, most times it's going to be between one and two percent in terms of conversion rate on those pages. I'll give you fun factoid for a school. So I think school right now is at like 4%. It's really good for school about pages. That's because when you have trust in a platform that starts to increase your conversion overall. So I'll give you a wild example on this. Again, these are rules of thumb. My Amazon page for my books, so like offers, for example, this is the last time I looked, we convert roughly a quarter of the traffic and the hits of a page. There it is. We went out of four clicks. VICE. Now, when you trade off when you have a platform like an Amazon, right, is that I'm not making all that money. Amazon's basically making all the money and then like paying me a small commission. And so you just have to play with the number there, which is like, okay, instead of it being, you know, 25% I'm getting two and a half percent. So I'm getting 10 acts the conversion per click. And I might be getting one third the gross profit. Is it worth it? Yeah, I'm still making three times as much money, right? But you just have to understand the difference in those things. I'll leave you with a final rule number nine, which is my I'm filling the holes back up for rule number nine. Anybody who loves potion number nine, I'll be dating myself. That was that was a movie. You can Google it. Anyways, I'll bring this up, which is this industry averages are done. And so what do I mean by that? The amount of times I've had a conversation where someone says, hey, you know, manufacturing these these, you know, these are these are these are origins are pretty good for manufacturing or, hey, you know, our margins are this in our industry. If the average American is in debt divorced twice, overweight, and just mid as fuck, right? Why would I want to have that be my bar to compare myself against? You say you have this, I mean, so many, so many, you know, business owners have this hatred for their competition. They hate their competitors. They want to crush their competition. And yet you want to measure yourself by the same stick that your competition measures themselves. What's a great way to be average? Right? As you use averages as as your determination of whether or not you're good. And so I would highly encourage you to just ignore averages altogether. Play the way. And that is just something that is that is really serving me well, which is like somebody will come to a space. We'll say, well, you know, you'll learn, you know, I know you guys have seen this clip of Tiger Woods when he's doing his first interview before his first masters or something. And the guy's like, he's like, well, you know, how do you feel being so young? You're coming on the master's tour. And he's out of how it gets to it. He's like, I'm here to win or I'm playing a win. And the guy's like, you'll learn, you know, you'll see, and then they play forward like a year or two or whatever. And he's there with his jacket, Talking the same God and the guy just has to like eat his words like it's so this or like the moment is amazing. And so like that is what I envision when I go into an industry that I don't know anything about is like that is the advantage I'm not going to you I'm not gonna I'm not operating within your frame of reality. Like why would I operate within the frame of beliefs that with the average person's achieved is what I will achieve. Why would I say that is the appropriate outcome that I should be shooting for? What? Because fundamentally when you quote an average to say this is good enough you have accepted that you were no longer going to try to get. And I just wholeheartedly reject that. Like the winner of every category is not the industry average. And I think almost promised you that they don't look at the industry average because why would they care? Like there's only what one rule that matters which is physics. If it's as long as the rules of physics allow it to exist there's no reason these that that we cannot get this outcome that we desire. Period. And so I'll get asked a question like do you think you can have margins in a manufacturing business that are above 10%. Yes, you know how I know I also have a friend of might who does complex machinery you know what his margins are net? 70% net. Well what does that mean about his gross margins? That means they got to be way above 70. You want to know what how he did it? He builds machines that he sells to big industries that automated huge function of different workflows and he will charge 400,000 dollars and a machine will cost him 17 grand because he has no now. If you think about what a business is a business is functionally a black box that transforms raw materials into an output where the value is higher than the inputs. That's it. That's all a business done is as we have raw inputs we transform these inputs into something that is more valuable. That is all a business does. And when we do this over and over again over an entire civilization we take many raw inputs and we increase that and that is how the entire world moves forward. And so without being said, those are my 12 rules of thumb that I learned in business different ratios that I use as my guide post my lights my lights my what's the light towers what are these things on the edge of oceans lighthouse those are the lighthouses that guide my path and I hope they serve you as much as they've served me.