The Mathematics of Business, Explained | Ep 932

Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast, you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned and will learn on his path from $100M to $1B in net worth. Wanna scale your business? ⁠⁠Click here.⁠⁠ Follow Alex Hormozi’s Socials: ⁠⁠LinkedIn ⁠⁠ | ⁠⁠Instagram⁠⁠ | ⁠⁠Facebook⁠⁠ | ⁠⁠YouTube ⁠⁠ | ⁠⁠Twitter⁠⁠ | ⁠⁠Acquisition ⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Hormozi?

  I've been in business for 14 years. Acquisition.com, our portfolio does over $250 million per year. Nine weeks ago, just at $106 million in sales alone, making the Guinness fastest selling nonfiction 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 or 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 and pay 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 dive into the first one.

• 0:43Alex Hormozi?

  The first one is close rates versus pricing. So if you sell people stuff, now this would be specifically for people who sell with a salesperson in 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 and close rate is that if you lower the price, we know our old supply-demand curves. If you lower price, demand goes up, et cetera. The idea is if you're closing at 80% or more in whatever you sell, so four out of five people you talk to buy your thing, you are typically underpriced by 3 to 4X. That might sound mind blowing to you, but that is just the data that I've, again, rules of thumb,

• 1:28Alex Hormozi?

  that I've collected 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 it's 60 to 80. So you're closing between, you know, three and four out of five who are there. You're probably underpriced by between 2 and 3X. 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 50 and 60%. So as we get close, you'll notice that the jumps compress. If you're between 50 and 60%, typically you're underpriced by 1.5 to 2X. So that $100 price point should probably be 1.5, so 150 or $200.

• 2:10Alex Hormozi?

  Forty and fifty percent close rates, you're probably between one point two five to one and a half X underpriced. Meaning now you should be at maybe one twenty-five or consider one fifty as upon a price point. Now, if you're like, okay, between, I'm at thirty-five percent. Well, you're between thirty and forty percent, which for me is appropriately priced. Under the assumption, you have all of the selling 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 prior to the pitch. And then the entire close calls about personalization, helping them make their decision. That is appropriately designed sales motion. If you have that sales motion and you were closing thirty-five percent, 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 a triple on your price.

• 2:54Alex Hormozi?

  If you set a proper sales motion in place. Now, if you're below thirty percent, 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 fix those two first, wherever 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 on your 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 a software product.

• 3:30Alex Hormozi?

  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, which probably like five percent of you here. For everybody else, that is kind of my point here, which is that you probably have an unscalable business. Which eighty percent of businesses are unscalable, meaning they're service based. And in those conditions, there's only one way you go in service, which is up.

• 4:15Alex Hormozi?

  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 chart, you go up, you go up in price. And then around and around you go, and the faster you spin that loop to going 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 paying 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 all be all. That is the pricing ladder that I use between price and close rate, which brings up rule of thumb number two, LTV to CAC. So you'll notice a lot of these are relationships between numbers.

• 4:59Alex Hormozi?

  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 typically paired or entetical 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 tickets as you can, but you want to make sure that the 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 or we still get retention, we still get referrals. So it's always going to be relationships between two things that are paired, which create rules of thumb. And again, these are not Brendan's thumb, these are rules of thumb. So let's get to the second one, LTV to CAC. So for those who don't know, lifetime value, how much a customer spends with you,

• 5:42Alex Hormozi?

  how much gross profit you make over the entire lifetime of the customer. CAC is cost of getting the customer to the door. So in plain speak, that's how much money does it cost you to make more money? CAC is how much money it costs you. Lifetime gross profit or lifetime value is how much you make. Now, 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 company CEOs talk 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 5% of businesses. So let me give you the other scenarios and what I consider to be ideal for them.

• 6:25Alex Hormozi?

  So three to one, and this relates to, I don't have anything to draw on. Hold on, I'll draw this for you.

• 6:32Alex Hormozi?

  So let's imagine.

• 6:38Alex Hormozi?

  Can we have overhead cam on? Okay.

• 6:42Alex Hormozi?

  You guys taking 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.

• 7:00Alex Hormozi?

  So if we were to use a binary scale of 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 checkout page and then the SaaS or the software does the delivery, right? All those zeros all across. And so for that, when you have all zeros, three to one between how much it costs you to get a customer and how much you make is an appropriate ratio. But what if one of these three things includes a human? So let's give a simple example.

• 7:44Alex Hormozi?

  You run ads to a checkout 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 backend. 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 to the loop, as soon as you add a human to the system, you're going to have lumpiness or inconsistency. So what do I mean by that? If, let's use the salesperson example, you're running ads to a salesperson. As soon as you get to a certain part where you've capped that salesperson's counter, what do you have to do?

• 8:28Alex Hormozi?

  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 trading somebody up and also having them suck. Because if we're at six to one with our one guy, or rather, 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 the next person comes in, we have some, we have some, we have some cushion. You know, a little cushion for the pushing, if you will, that, that gives us, again, padding. I keep saying padding, so you'll probably hear padding a bunch of times, but that's what it is.

• 9:11Alex Hormozi?

  Now, let's say that you've got two of these three. So now, let's say we're, uh, we're running ads and we have a, we have a major 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 are 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 to 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, they bring on, you know, they 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

• 9:56Alex Hormozi?

  and saying, is this ready to scale? Because if I had the pick of like, I would rather scale really fast for three years and then realize the business is 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 second one. But the thing is, is people, if I say that to you, most people will be like, oh, of course I picked 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 loop, I'm going to have inefficiencies on delivery when I bring in a new rep or a new technician or new whatever, who's not going to be as good, not as, not as effective as the other people. I've got to be able to eat that. If I have a bad, uh, salesperson, when they come in, I'm going to have to be able to eat that.

• 10:38Alex Hormozi?

  And so now I gotta 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. Now, I want to put this in perspective for you guys.

• 10:59Alex Hormozi?

  One of the gifts that I can hopefully give is frame shifts, is the change of perspective. So, let me know in the chat, the first year of Jim 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, alright, we had a phone sales team. What do you think my LTV to CAC ratio was? Let me know in the chat. Five to one, 10 to one?

• 11:34Alex Hormozi?

  Four to one, six to one? What do you guys?

• 11:39Alex Hormozi?

  What do you guys? Let me see some nums. Let me see some digits. Six to one, four to one, nine to one, two to one, thirty to one? Liam, nice, thirty to one, three to one, fifteen to one. Yeah, I appreciate the belief, guys. RP, hundred to one, you crazy mofo. Ronald, five to one, twenty-five to one, twenty to one?

• 11:59Alex Hormozi?

  You guys want to?

• 12:02Alex Hormozi?

  I'm done.

• 12:04Alex Hormozi?

  The first year of Jim launch, my LTV CAC was a hundred to one. I spent a hundred grand and made 10 million. Why? Recommend. Uh, it was wild, wild times, okay? Now, what, how is that, how is that possible? Right, how's that possible?

• 12:26Alex Hormozi?

  Most of the money that I've made in my life has happened during these distinct windows of opportunity, where there was huge arbitrage to what it cost me to get a customer and what a customer was worth to me. And, uh, 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 tweaking the money model, which is why I made the book Money Models. You have to keep cranking on this thing until eventually you crack through that lever. And so, you see 12, or people are like, "That's crazy." I'm like, "This is the minimum." And again, this is if you want to scale big. You could absolutely run a business that does six to one, and you know, make a million bucks here, a million bucks here. Like, you can do that.

• 13:09Alex Hormozi?

  I'm saying, if you want to see what the biggest companies in the world have, they have absurd LTV to CAC. Now, what is, there's only two ways to improve that ratio, right? Way one is you drive CAC down to zero. Because there's only two long-term winning strategies in business. Have extremely low CAC, which means you built massive brand, A. Or B, you have a product that is viral. Those are 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 unlimited LTV. No, they have a business where CAC approached zero.

• 13:51Alex Hormozi?

  And so if you get CAC to zero, you could effectively 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 Salesforce, right? Uh, and a company like that, they might make a million dollars or five million dollars per year on enterprise-level customers. 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 there's still going to be huge costs of getting those customers, especially the larger customers with contracts, they have to bid against other CRMs, et cetera, et cetera. And so both of those are big companies. The idea is that you have to know what type of company you're going and your winning strategy to scale. And so to make this extraordinary LTV to CAC ratios, one of these has to approach zero or infinity.

• 14:36Alex Hormozi?

  That's the game. So that's the second rule of thumb. Look at your three steps. Am I zero to one on attraction? Do I have unlimited scale on attraction? So if you're like, what's an unscalable version? This would be like, I do manual outreach. That would be human in the loop versus I run ads or make content. Conversion here would be checkout page is scalable, human, uh, phone team or sales team in person. That has a human. Delivering, 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. You can see what your LTV to CAC ratios are, you can see where you're at and whether you need to improve them. Which brings me to rule numero tres. That is Spanish for rule number three.

• 15:19Alex Hormozi?

  I think it'd be, but like, let's not get crazy. Um, I know it is, oh, gift.

• 15:26Alex Hormozi?

  Well, I messed that one up. Either way, hopefully you're with me. Real 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 and 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 at the stage that you're currently at, this is a free gift. So all you have to do is go acquisition.com/roadmap. 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. On the thank you page, you can book a call. Every month, we have a workshop out here at my headquarters. You actually talk to my real team that does,

• 16:11Alex Hormozi?

  does our marketing, does our emails, does our ads, does our copy, does our, does our, does our sales, does our finance, does our recruiting. The real people are doing this 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 could 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 a call. No pressure. This is a gift either way. It's absolutely free. So rule number three 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?

• 16:56Alex Hormozi?

  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 from 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, the idea of like the heart of a missionary versus a mercenary. You have to commit in your heart that you're going to do 100 days. And then it happens very quickly. If you try to do this for 100 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.

• 17:41Alex Hormozi?

  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 rule of a hundred and you just apply it to new channels. And so if you're like, we run minute ads, it's like, great. Well, we need to just take the same perspective on how we're going to run YouTube ads or Google ads. Right? If you're on content side, it's like, we make 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 rule of a hundred yet again. Now, if you're a smaller business, which most businesses are full by, by statistics and reality. Ninety-five percent of business left in a million dollars. So here we go.

• 18:25Alex Hormozi?

  If your business feels feast or famine, meaning if you get a sale this week and then there's nothing and there's nothing and then next week you get one and then 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 year over year, if you're the type of business that does a small amount of advertising, you might sell about the same amount of number of 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 to 30 days. And let's say that you on average get three customers a month.

• 19:10Alex Hormozi?

  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 occurring either through content, through word of mouth, through outreach, through paid ads, whatever affiliates, people referring to you 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 haphazardly 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.

• 19:54Alex Hormozi?

  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. And so the companies that are doing Thirty times more sales than you are typically doing thirty times more advertising than you are.

• 20:08Alex Hormozi?

  And so I've put this in perspective, many, I've seen, I mean, because obviously businesses fly here every, every week. I've taken this into account, so I know a lot of numbers around 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 ten or one out of a hundred are going to be super outliers, of course. The top one percent, the top one out of a hundred, the top ten percent, you know, one out of ten.

• 20:41Alex Hormozi?

  With that volume baked in, things tend to normalize again. And so we make, whatever it is, four hundred and fifty pieces of content a week, right? Almost five hundred for simple math. So we're looking at thirty, you know, twenty-five, thirty thousand pieces of content per year. And many of the people that are at one billion dollars are doing something in the neighborhood of like one a day. And so they're doing three hundred and sixty-five and we're doing like twenty-five or thirty thousand. And so we get nine or ten times the, uh, sorry, uh, uh, way, way more than, no, sorry, that's a thousand times. A thousand times the outcome that they are. Now, you could 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, I'm good.

• 21:25Alex Hormozi?

  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 who are smaller miss out on. The amount of conversations I've had with small business owners who are all about optimization, again, 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 who want the most are the ones who win.

• 21:58Alex Hormozi?

  Which leads me to rule number one. Lead response times. So, rule of thumb here. 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 gonna do? So this Persian 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, they're a little too hot and heavy. You know what I mean? Like, let's make sure they don't make a decision that they would regret.

• 22:43Alex Hormozi?

  You know, I don't want them to take that wallet 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 them date around. Let's let them call some other businesses so that by the time we finally get to them, if we ever do 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 into 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 to acquire a 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 from Blueprint was talking about this. You're like, where's he going with this? I'll bring it back home.

• 23:27Alex Hormozi?

  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 LTV to CAC would be that number. But underneath that number would 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 Forex your sales? People think, yeah, but I can't, I can't afford to hire somebody to call my leads in that speed.

• 24:13Alex Hormozi?

  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 costs you to get a customer. If you divided that by four, would that improve your LTV to CAC ratio? Would that be the thing that you need in order to scale? Do you think that 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 attack these areas first because there's huge returns from minimal effort. Talk about maximizing, optimizing. For the love of God, please call your lead quickly.

• 24:58Alex Hormozi?

  Sorry, a little passionate about that one. All right. Think the spirit moves? I don't take it back. We can just move on. Okay. Which brings me to rule number five, 70% quality utilization. Okay, so this is a rule of thumb. When you have more salespeople, there's another issue that starts to come up, which is my sales team's underutilized or they're booked out. So what's the sweet spot? The reason this is important is because, well, if you miss it, you will... Let me go either extreme. If you have your sales team completely booked out, fully utilized, here's two things that happen as a result that are bad. Number one is that your total lead conversion will go down.

• 25:41Alex Hormozi?

  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 CAC, the 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, they can't find convenient times. So, one, it's further out, and so show rates on further out 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, show rates go down. Number three... What happens if a sales guy is making calls all day long? What are they not doing? They're not doing out there.

• 26:26Alex Hormozi?

  What are they also not doing? They're not following up on the calls that they should just... They have six inch putts, they have some tippins that they need to do, that they just aren't doing because they're all calls a day. 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 calendar, better utilize their time so you can maximize conversion. Okay? So, on the other extreme, let's say that you have 30% utilization. Uh, so, you know, 70% of their calendar's, uh, empty. The problem with this that I've found is that sales team morale can start to drop because they don't really ever get in 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 this sale, right?

• 27:11Alex Hormozi?

  I'm not gonna get paid." And so, it's a balance between both those things. So I've found 70% is kind of the sweet spot. I don't let it get above 85. Um, and 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'll, and I'll explain the reasoning why. When we see conversion rates, as in we get 100 leads, we want to maximize the conversion of those leads. It's functionally is what a sales team's supposed to do. Why, why you have a sales team rather than just a checkout page? If we want to maximize that conversion, then we want to give the time, we want to give, one, enough times for the prospect to book soon. Two, enough time for that time to be convenient for them. Both of these things increase show rates. Number three, we want to have the salesperson have enough blank space in their calendar

• 27:54Alex Hormozi?

  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 and low weeks with ads in terms of book calendars, but our sales remained relatively the same. And I was like, "How does that work?" And it was just because when a big wave came in, the guys were really inefficient. And when there was, you know, a famine, if you will, there was more empty calendars, the guys squeezed their pipelines. And so I was like, "Man, if we just squeezed our pipelines all the time, we would just make, all the high weeks, we'd make so much more money." Well, how do you do that? You typically need to hire more salespeople. And I'll say as a, as a personal note, I have yet to make less money by hiring more salespeople.

• 28:32Alex Hormozi?

  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 that amount is so they're always striving, they're always squeezing the pipeline, rather than, you know, they can sell to their goal within the first two weeks and then they take the last two weeks of the month off. And that's where, um, you know, entrepreneurs, hey, do I need to chief my sales commissions? Maybe, but more often than not, it's like you can just add salespeople so that they can squeeze their opportunities better. All right. Which leads me to rule number six, payback period. Actually, that's how, felt very aggressive.

• 29:17Alex Hormozi?

  Payback. Um, so what is payback period? It's how quickly you can recover the cost of getting a customer. Now, for me, ideally, I try to do it within 30 days. So payback period in general is how fast you get the money back from what it cost you to get somebody. My goal is within 30 days. Why? Because just about every business owner, at least in America, and at least the developed 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, then it means that you can grow without money out of 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

• 29:59Alex Hormozi?

  end of the month, I owe no one anything and I now have a customer. That is the power of this. Now, you can repeat that ad infinitum, which is Latin for lots of times, into infinity, but let's not get, let's not get too technical. So, the reason that I use that as my, 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 CAC and launch of 100 to 1. It didn't stay 100 to 1. It was 100 to 1 the first year, right? And over time, it ended up being somewhere that you were at 30-ish to 1. But the idea, because as you scale, more levels of, of infrastructure will 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 scales. Now, back to payback period.

• 30:48Alex Hormozi?

  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 yourself 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 pool cash forward? And functionally, this is literally what the entire book for money models is about, was driving more cash flow forward. Now, if you have a business where you're funded from the outside, A, or B, you're a very large business that has huge capital reserves, you have a huge base of recurring customers, then you can get more aggressive, of course, right? Like, if you're gonna go head to head with, you know, Apple, then sure, they can, they don't need to get their money back in 30 days.

• 31:30Alex Hormozi?

  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. Um, but for, again, everybody who's watching this, most of you guys are bootstrapped. Actually, can we do a poll real quick? All right, let's say, who here is bootstrapped versus has investors? That's 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, uh, which is all the investor bros. Now, all the guys who have outside investors, I promise you, you will get investors frothing at the mouth if you can, uh, show that you can get payback created within 30 days, number one. Number two, if you have payback group in 30 days, guess what you also don't need?

• 32:10Alex Hormozi?

  Investors, because you don't need their money to scale, which gives you a huge amount of leverage into when you're getting to 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, Bank of Alex is what's funding this stuff. And so, we have to think, are there initiation fees, are there setup fees, are there, is there onboarding process, is there on-ramp? Is there a front-end defined program or setup that I can sell? Can I, can I bundle in some sort of physical product upfront with my services? Can I sell a bundle of an extended period of time to cash flow at day one? Can I do a buy one, get two? Can I get them to pay for the last month upfront?

• 32:53Alex Hormozi?

  All of these are different tactical versions of solving for the same problem, which is I want to pool cash forward so I can recover CAC 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. Period.

• 33:12Alex Hormozi?

  So it's the strongest recommendation I can give you. 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.

• 33:29Alex Hormozi?

  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, 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 a test, right? Like learning a hundred terms, not that hard to understand it. Almost all of them are relationships between two things. That's what 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 those things is your gross margin. To be clear, that's not your net profit margin, which is a different ratio, right? Between two, not necessarily the ratio, but the difference between two different numbers, right?

• 34:11Alex Hormozi?

  But your gross margins are very important because it is what dictates everything else in the business. So what do I mean by that?

• 34:18Alex Hormozi?

  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 could have literally no other cost besides the thing you sell in the entire business. You can't have any cost of acquiring customers. You can't have any fixed overhead. You can't have any employees that are not specifically in delivery. You can't have any admin, any help, of course. Now the likelihood of you getting to a 50% margin when you have 50% gross margins is basically zero. And so this is why, and traditionally, small business owners will undercharge because they sell out of their own wallet. Right? And they sell out of their own wallet in two different ways.

• 35:02Alex Hormozi?

  They sell out of 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. Cause they're like, man, I get what it's like to struggle. But I think there's nothing wrong with that. It's just understand the business is not going to grow and you're not going to home with people. The other reason they sell out of their own wallet 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, don't agree, right? And so the idea is that like,

• 35:35Alex Hormozi?

  If you're good at fixing cars, right? You're like, well, it comes naturally. It's not that hard. You gotta 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 minds. And I always, you know, everyone gets heart palpitations when I say math. 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? It costs me a hundred bucks a month. Okay?

• 36:20Alex Hormozi?

  That's what it costs in services and whatever. So if I want to have 80% gross margins, which I said these are rules of thumb, my rule of thumb for services is at least 80. Okay? So I want to show you two different scenarios here. So at 80%, at 80%, this hundred dollars, I have to have $500 has to be my price. Okay? At 70%, and I have a hundred dollar costs. Hold on. Who's, who can do this math for me? All right, I gotta do this. All right, 100 equals 0.7. Julian, you were pre-med. Do it for me.

• 37:03Alex Hormozi?

  All right, I'll, I'll tell you this. I'll tell you what 0.7 is like. Equals a thousand dollars. Where is it? Where, where? Lady Jack has to skip the S's a lot. Thank you, gross allowance. 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, uh, 30%. Okay. So it should be 100 divided by 0.3 is what it should be. So 100 divided by 0.3, right?

• 37:41Alex Hormozi?

  It's 330. Thank you. So that would mean that 233 should be 70%.

• 37:47Alex Hormozi?

  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, well, my, my 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 can pay yourself, right? If we say, hey, is there a way you think we could go from 70% to 90%? Well, that, 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?

• 38:31Alex Hormozi?

  You double. You make way more money.

• 38:35Alex Hormozi?

  And sometimes it means a lot more than that because sometimes the incremental margin is all margin, whereas every dollar revenue up to that point covered costs, 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're not. And so this is why I'm so adamant that 80% is my minimum. I target like, that's my baseline. And then front like, I will not get into a business with less than 80% gross margin. I won't do it because I know that I then have to run everything else off of this 80.

• 39:18Alex Hormozi?

  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 gotta cover rate, I gotta cover admin, cover insurance, I gotta cover, um, I gotta cover, uh, marketing, I cover sales, I'm gonna cover everything else with just this 30%. So I can have 50% left to.

• 39:38Alex Hormozi?

  Is this, is this ringing? Is this ringing with you guys? This is making sense?

• 39:43Alex Hormozi?

  Even if it's a service-based business, bro, this is for service-based businesses. Not to you in Australia. This is for service-based businesses.

• 39:54Alex Hormozi?

  And this may, this is why, like,

• 39:58Alex Hormozi?

  so ideally, I like to have, I mean, again, this is minimum. And I know this is gonna blow your minds here. Like, I, like, one of the first things we did when we fixed gyms is we made sure the pricing was at least 80% gross margins.

• 40:14Alex Hormozi?

  That's a service business.

• 40:17Alex Hormozi?

  So if you're like, well, that's not possible. Of course, it's possible. It's not possible when you sell a commodity. If a customer can look at your thing and somebody down the street's thing 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, you know, pink Himalayan, it's salt, right? And so how do we make these two things different? We have to brand it. It's pink Himalayan 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?

• 41:00Alex Hormozi?

  And for those of you who don't know, I wrote a book on this. It's called $100 million Offers, it's 27,500 reviews, you should 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, this is the, 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 doesn't function properly, right? And so that's the, that's the big idea. So if you want to run a high margin business, then you have to run exceptionally high gross margins for whatever it is that you sell. Okay, cool. That math was tough, wasn't it? All right, so let's do rule number eight, rule of thumb number eight, if you will.

• 41:45Alex Hormozi?

  38 cash collected. So this is a, this is an add-on to the 38 payback period.

• 41:54Alex Hormozi?

  What is the exact amount of money that I want to have collected within 30 days? It's gonna be COGS, 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 too, to be clear. So it's cost of goods sold, how much it costs you for the stuff, plus cost of getting.

• 42:19Alex Hormozi?

  Okay, so if we, the cost of getting the customer and the cost of whatever we got them, heck, we want both those things together.

• 42:29Alex Hormozi?

  We want whatever we collect to be greater.

• 42:40Alex Hormozi?

  We want the gross profit or the cash we collect in that first thirty days to be greater than this plus this.

• 42:47Alex Hormozi?

  The reason this is so magical is that once this occurs,

• 42:52Alex Hormozi?

  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.

• 43:04Alex Hormozi?

  That is why it's so magical. And so that is what the whole point of this thirty day cash collective thing is. We want to pull it forward. Cool? Great. Now, manufacturing, study with Zoro. No, manufacturing, you're going to have different margins because you have cost to get sold, and that's going to be a little different. Um, I would, to be fair, I would still prefer to have a business that has eighty percent gross margin. But with services, for human services, um, I, I had that as my rule of thumb. Is that I always want eighty percent or higher gross margins. Okay. That brings us to rule number ten, which is functionally rule number nine, but we're calling it ten because I skipped number nine, but let's just go. Which is churn and retention. So,

• 43:44Alex Hormozi?

  I want to only have to acquire customers once. The reason that most businesses cannot get big is because they are always filling a 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 exhaustive. And so you want to be, and this is John Paul DeJorio, uh, is the quote from him. He said, "You don't want to be in the sales business. You want to be in the reselling business." And so what he meant by that is how do we get customers to just buy again and again and again? Which does 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 B, 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.

• 44:30Alex Hormozi?

  And so what happens is people would typically try to scale too fast before they'd actually figured out revenue retention and churn. And so what are quote good benchmarks? Well, good benchmarks for anything B to B is you probably want to be above eighty percent. In terms of retention annually. So that means that if I get 100 customers, Jan 1, right? This is January 1.

• 44:55Alex Hormozi?

  Let's say 2025.

• 44:58Alex Hormozi?

  Jan 1, uh, 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, and they come January 26th, 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, uh, value of a customer is. 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 $100 per year.

• 45:41Alex Hormozi?

  If you have 50% annual retention, then it means that you can basically double it. So you divide it by 50%. Equals $200 is what you're going to make from a customer. Now, here's where this gets really wild. Let's say that you have 80% annual retention. 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%, right? And so, simple math on that is around, the back of napkin on that, is about $500.

• 46:17Alex Hormozi?

  Como se dice? A lot. Mucho dinero. All right? And so, think about two businesses, and this is why this is so important.

• 46:27Alex Hormozi?

  The cost of getting customers between different businesses is typically very, uh, commoditized. So CAC in an industry is a commodity. Think about how weird that is as a sentence. If there's two social media marketing agencies that both sell generically similar services. Now, 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, 10, 100 times more valuable, is that those customers are worth five, 10, 100 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, than the, the business

• 47:11Alex Hormozi?

  that only has, call it 50% retention, right? This guy's dating two and a half times more per customer than the first company, even though maybe the cost of getting the customer in both these scenarios might be the same. This is where there's a 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 stay with you year over year, definitely worth figuring out. And so, that is my rule of thumb, is that I target. And so for each of these numbers, as I'm sharing them, is like, this is my target, this is what I want to get to. And if I don't have that, I see this as a huge problem in the business, and I have to go fix it. Otherwise, I just know that I'm going to create, I'm going to scale problems, right? When you scale problems, they just get meaner, uglier, 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 up in it,

• 47:56Alex Hormozi?

  which is why most entrepreneurs can't scale.

• 48:00Alex Hormozi?

  So, rule number 11. What is a good rule of thumb for how many people prepay? So, a lot of you guys, uh, some of you guys follow my stuff. Um, I'm obviously a big fan of pulling cash forward, because of all the reasons I already mentioned. One is if someone prepays for a year, no one can churn if you prepay, right? You're paid for the year, can't really churn out, right? Uh, what benefits happen when, when you prepay? Well, if you, uh, prepay, you get all that cash today. If you get all that cash today, we can use it, do that cash, go get more customers, right? Think about this.

• 48:31Alex Hormozi?

  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 same value of that money in a year will be worth 10% more. At minimum, you could take the money, put it in the dark stock market, and then wait a year, and it would be worth 10% more. And so, like, at minimum, that is a, that is the amount that I'm willing to give to pool cash forward. All right? Now, what percentages, rule of thumb, uh, should you expect? So, let me give you a couple. So, um, if you have, uh, call it a, a...

• 49:10Alex Hormozi?

  Like a buy ten, get two type deal like you pay for ten months and you get uh you get two for free. You can expect somewhere in the neighborhood of like fifteen to twenty percent of people to take that off. Alright, if you give discounts in excess of that. And, 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, how can I deliver something to them faster? How can I make it less risky? Uh, and then how can I make it easier? So if I say, hey, um, you can prepay and if you prepay, you skip the line. Wow, that sounds nice. Hey, if you prepay, you'll get a dedicated concierge versus being included.

• 49:50Alex Hormozi?

  Hey, if you uh prepay, I'll also add in our guarantee or I'll double the length of our guarantee. Right, so these are some of the things that you can manipulate in terms of variables to pull cash forward. Now, when you have a, a moderate discount plus one or more of those kind of like um ancillary benefits that I just rattled off. You should expect thirty to forty percent of people to prepay. That's a monster difference in terms of cash forward. Now, simply off route that for many of you, if you're not doing it, will pull cash forward. Now, a corollary is whether you have a third party financing company. Now, this is directly from um a firm. Uh, 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. Uh, I handle a little bit.

• 50:35Alex Hormozi?

  Uh, and the, the metrics that they quote is a thirty-five percent increase in sales overall. 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 all that cash today, which is why having very good financing partners can be a huge game changer for a business. Now, I will, I'll put this little caveat in place, which is that financing will not save your business. If your, if your food stocks in your restaurant, financing it will just get more people to find out that the food stocks faster. Alright, so I've never seen a business get saved by this.

• 51:19Alex Hormozi?

  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 um that have worked really well for me. So, right off the bat, if you just say like, hey, people go into monthly, 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't, I say, great, let's split it. Half now, half in a month. Now, this is a little, little pro tip on this. Half now, half in a month, I might 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 want to get paid now and in thirty days because they got the money, I might as well ask, right? The worst they can say is no.

• 52:02Alex Hormozi?

  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 a twelve month, I want to pull that cash forward. Now, a little pro tip again is always ask what if it's to uh if you're if you're talking to a wagee. Ask them when they get paid and then align the payments on those days. If you're not talking to a wagee, you can ask when they have the uh 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.

• 52:31Alex Hormozi?

  You do not need to coordinate payments with your delivery. Now, one of my favorite uh methods of payment so that I can pull cash forward is something that came out of the depression in the nineteen thirties, which is something called L A O. It might be something as old as time. I'm sure it was in two thousand B C, but I just know from the for the depression because of course I lived there. Uh, at that time, it's uh, the way it works is simple. You start paying now, and when you finish paying, you get this very straightforward. So, you can, I remember, and I remember the first time I did this. Um, I had, I was selling, this is with Alan. I was selling, uh, we had this big onboarding because what I was hired, like kind of enterprise SaaS.

• 53:11Alex Hormozi?

  So, we would sell to agencies, uh, it was twenty five thousand dollars a white label, and then they would use it kind of as their own operating system. And so, it cost twenty five grand to kind of like get on boarded. 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, walk them through everything, etc., right? Now, I remember having two partners who were on the phone, uh, they're like 25 grand, they're like, that's awesome. Um, and then, uh, they said, can we split into payments? And I said, sure. And they said, well, um, how many payments can I split it up to? And I said, as many as you want. And they were like, oh, amazing. We'll just spend, you know, we'll just do 2,000 bucks a month. Um, and we'll, we'll pay it off, you know, this year. And I said, okay, cool. So we'll just set your onboarding for a year from now.

• 53:55Alex Hormozi?

  And they were like, oh, we gotta like pay before we come in. And I was like, yeah. And then it was, this is why it was such a reinforcing moment for me. They just said, oh, okay. Well, we'll do it now in 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 got anything yet. And so they've already decided they want this thing. I also like layaway because people have anticipation.

• 54:37Alex Hormozi?

  Think about the last thing, maybe you were a kid when you did this, but like, I remember there was a pair of Oakley sunglasses that I thought were the coolest ones. You might've remembered them. They were in, um, X-Men Cyclops had 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 a hundred and sixty dollar sunglasses, right? Which is absurd. But I, I, I think they were a hundred, a hundred and twenty or a hundred and sixty dollars at the time, inflation. Um, and they were like the hottest, coolest sunglasses. So anyways, 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.

• 55:18Alex Hormozi?

  In fact, it was so good, I literally never wore them because I was so afraid of losing them because I'd spent so long to save it. Um, which was also a great lesson in like, sometimes you gotta just learn to spend money and enjoy what you spend. A different thing for a different time. Um, 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 you can start a cash flow in the business. I'll give you a, let's see here, do I have, do I have any more notes that I wanted to go over? Yeah, I was gonna give you guys some rules of thumb for like different ton of conversion metrics. So one of the simple ones would be like, if you're doing, there's so many variations.

• 56:02Alex Hormozi?

  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 an in-person service business, you should close about 10%. If you're, you know, above that, amazing. If you're below that, you probably have some opportunity for improvement. If you're closing off cold webinar leads, if you're selling to broader markets, you're probably looking at 2% to 3% conversion of those leads as in webinar opt-ins to sales. If you are a little bit more niched, then that could go up to 5% of leads. The craziest I've ever seen, and like, again, that's leads, not shows. Right? Well, people who are there during the offer, that's just overall, like you had 100 people opt in for webinar. All right. If you have a salesperson that's in person, right?

• 56:44Alex Hormozi?

  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 in touch with. Typically, if it's higher than that, I will raise price. Below that, then, then I will fix the process before I would even consider lowering the price. Webpages, most times it's going to be between 1% and 2% in terms of conversion rate on those pages. I'll give you a fun factoid for 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.

• 57:26Alex Hormozi?

  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 that hits that page. They're crazy that one out of four clicks buys. Now, when you trade off, when you have a platform like an Amazon, right? It's 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 numbers there, which is like, okay. Instead of it being, you know, 25%, I'm getting 2.5%, so I'm getting 10x the conversion per click. And I might be getting one third the gross profit. Is it worth it? Yeah, I'm still still making three times as much money. Right? But you just have to understand the difference between those things.

• 58:08Alex Hormozi?

  I'll leave you with a final, uh, rule number nine, which is my, I'm filling the holes back up for rule number nine. Uh, anybody remember Love Potion number nine? I'd be dating myself. That was a, that was a movie. You can Google it. Anyways.

• 58:23Alex Hormozi?

  I'll bring this up, which is this. Industry averages are dumb. And so what do I mean by that?

• 58:30Alex Hormozi?

  The amount of times I've had a conversation where someone says, hey, you know, manufacturing, these, these, uh, you know, these are, these margins are pretty good for manufacturing. Or, hey, uh, you know, our margins are this in our industry.

• 58:43Alex Hormozi?

  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 competition. They want to crush their competition. And yet you want to measure yourself by the same stick that your competition measures themselves? Well, it's a great way to be average, right? Is 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.

• 59:18Alex Hormozi?

  Play to win.

• 59:20Alex Hormozi?

  And that is just something that is, that has really served me well, which is like some people, I'll come into a space. We'll say, well, you know, you'll learn, you know? I know you guys have seen this clip, um, 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, uh, you know, what, how do you feel being so young? You're coming on, on the masters tour. And he's, I don't know how it gets to him, but he's like, I'm here to win or I'm playing to win. And the guy's like, you'll learn, you know, you'll see. And then they play it forward. Like a year or two or whatever, and he's there with his jacket, talking to the same guy. And the guy just has to like eat his words, like it's so visceral, like the moment is amazing.

• 1:00:02Alex Hormozi?

  And so like, that is what I envision when I go into an industry that I don't know anything about. It's 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 what 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've accepted that you are no longer going to try to get better. And I just wholeheartedly reject that.

• 1:00:35Alex Hormozi?

  Like, the winner of every category is not the industry average. And I can almost promise you that they don't look at the industry average, because why would they care? Like, there's only like 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.

• 1:00:55Alex Hormozi?

  So, I'll get asked the question like, do you think you can have, uh, margins in a manufacturing business that are above 10%? Yes. You know how I know? I also have a friend of mine who does complex machinery. You know what his margins are? Net? Seventy percent. Net. Well, what does that mean about his gross margins? That means they gotta be way above 70. You wanna know what, how he did it? He builds machines that he sells to big industries that automate a huge function of different workflows. And he will charge $400,000 and a machine will cost him 17 grand. Because he has no doubt. If you think about what a business is, a business is functionally a black box

• 1:01:37Alex Hormozi?

  that transforms raw materials into an output where the value is higher than the inputs. That's it. That's all a business does, is we have raw inputs, we transform these inputs into something that is more valuable to you. 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 value. And that is how the entire world moves forward. And so with that being said, those are my 12 rules of thumb that I learned in business, different ratios that I use as my guidepost, my lights, my lights, my, what's the, light towers? What are those things on the edge of oceans? Lighthouse, those are the lighthouses that guide my path.

• 1:02:19Alex Hormozi?

  And I hope they serve you as much as they've served me.