The Game with Alex Hormozi - The Number That Will Scale Your Business More Than Anything Else | Ep 720

Episode Date: July 19, 2024

"When you finally crack this, you will have license to print money for as long as you possibly can." In this episode, Alex (@AlexHormozi) breaks down the LTV:CAC ratio and why understanding it is such a fundamental aspect to your business's growth. It's one of the key numbers Acquisition.com looks into when evaluating investment opportunities because it captures the core economic engine of the business more than almost anything else.You'll learnWhy It mattersHow to improve LTVHow to improve CACHow it will make you tons of money and scale predictablyWelcome 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 on his path from $100M to $1B in net worth.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

I want to talk to you about a formula, better stated, a ratio that you need to absolutely know, like the back of your hand, if you want to grow a big-ass business. And if you understand this number, you'll be able to make better decisions. You'll be able to predict how far you can scale your advertising, how profitable you're going to be, how many customers you can get, and a number of other factors that are all derived from this one number in the business. I cracked $100 million net worth at age 31. All of the huge growth in money came from times when this number, was maximized. The most businesses kind of putter along at a mediocre version of this number.

But when you really knock it out of the park, you can absolutely have a license to print money for as long as you possibly can. And at the very end, I'm going to tell you the two levers you can crank to move this number into the stratosphere. So what is the number? Well, the number is actually a ratio between two different numbers. And these numbers have multiple metrics that create those numbers. So it's an incredibly densely packed number and it describes so many things that happen within the business. And it will tell you how much opportunity you have, which is why it's so exciting for me.

The first number of this ratio is LTV, so lifetime value. Now, in common speak, people say lifetime value, but what they really mean is lifetime gross profit. And so let me explain the difference. Most people say lifetime value and they think, okay, well, somebody pays me $1,000 a month for five months. That means their lifetime value is $5,000. No, that's not the lifetime value.

You have to take out the cost of delivering on whatever service or good you have, and then you have the lifetime gross profit because that is the profit that you'll be able to reinvest in growing the business or that you'd be able to take out as a business owner. On the other hand, you have hard costs, which is the KAC to get that customer to pay you the money. And so if you think about relationship between these two metrics, it's really how much it costs

you to make more money. And so you spend money to acquire a customer or time, which still costs money, to make more money. And this is the fundamental economic unit of the business that propels the business and predicts how big it can get. If I see a small business ad at a 100 to 1 LTV to KAC ratio and they have a reliable way of getting customers, then I know that this thing can scale to the absolute moon because I can get so inefficient. I can be one-tenth as efficient on my advertising and still have 10 to 1 returns.

And so people get obsessed in the stock market about 5%, 10% per year returns. Whereas the reason that businesses can create disproportionate wealth in very accelerated time periods is because you can put $1 in and get $100 back tomorrow. There's nothing else that does this. And that's why mastering the LTV to KAC ratio has been something that I've obsessed with my entire life as a business owner, as an entrepreneur, and now as an investor. So let me tell you what it looks like when it's done wrong. So I had a Facebook ads agency come up to me and say, hey, we're crushing it. We're getting five to one return on our ads, meaning cost us $1 to make five.

And so it costs us $2,000 to get a customer and they're worth $10,000 to us. And they're like, but we're losing money every month. Rather than jump immediately into payroll and try and figure out with the cost where I said, well, break down your LTV metrics for me. And again, I'll use LTV because that's what common speak is in business world. I say lifetime gross profit because I think it's more specific. So break down your LTGP for me. And he said, okay, it's $2,000 a month for a service. And the average person's day is five months.

And I was like, okay, in other words, they had 20% churn. So you take the price divided by churn, which is 20% equals $10,000. So there's two different ways of explaining it. Five months on average is $2,000 times five is 10 or $2,000 divided by 20% churn is also 10. You have to know this stuff. I know people don't like money, Matt, but I swear to God, if you can't do this division, you will literally never make money. Okay, back to it. From the $2,000 a month, I was like, so what do they pay in ad spend? It's like, oh, no, we wrap it into that. I was like, okay,

here we go. What are you spending per month for them in ad spend? They're like, well, we budget $1,000 a month. I was like, okay, so $2,000 becomes $1,000 left over. I was like, okay, do you have a super efficient delivery model? And they're like, yeah, every account gets, you know, a representative. I was like, okay, well, how many accounts, can a representative handle? They're like, well, we used to do 10, but they can't really handle that. So we have them do five accounts.

I was like, okay, well, what do you pay those reps? And they're like, well, $5,000 a month each. I was like, okay, $5,000 a month each divided by five accounts means $1,000 per account. So $1,000 went to ad spend, $1,000 went to management. $0 left over. And I was like, so what you guys have figured out is a way to take $2,000 and turn it into zero.

And they looked at me, like I had killed their mother. The point is this is an extreme example. But a lot of businesses have the situation where they have a cost of goods, they have some cost of service that's added on top, and they take it as though it's revenue. When it's really, you have to look at the gross profit. What's left over after you deliver the goods? Now, to be clear, there are fixed costs in a business,

meaning you've got rent. You've got some people that have nothing to do with delivery. You don't factor this into gross profit because if you sell an additional unit, that additional unit, that additional gross profit goes to you that you can either reinvest in the business or just pocket as a business owner, which who doesn't like that? And so fundamentally, this is LTV.

This is how much money you make from the customer, for real, not your wink wink, stripe screenshot. And if you're a business owner and you like learning this language of business and wanna understand more deeply the many other metrics that exist in the business to that you can pull on the levers that accelerate the value you have,

we just started a workshop division at Acquisition.com for companies that we don't own. If you wanna see if you qualify, you can fly out to Vegas, we spend a whole day with the company and our team's there, and we show you all the things that we would do if we bought your business tomorrow to grow it.

So if that sounds interesting, you can go Acquisition.com, hit the scale button, and if you qualify, our team will reach out. The CAC is actually very simple to understand. It's just how much it cost you to get the customer. And all you have to do here is just look historically. You say, okay, over the last 30 days, I spent this much on my marketing payroll,

I spent this much on my media, the advertising dollars I spent, and I spent this much on my sales team in commissions. You add all that up, and then you divide that by how many customers you got. So if you spent $10,000 in ads and you spent $10,000 in payroll between sales and marketing, your cost is $20,000. And if you had 20 customers, then it'd be a thousand bucks a customer. That would be your Kack.

And so then you look at that Kack, which now is very clear. A lot of people can understand their Kack quickly where they get messed up as their LTV. But once you have these two metrics, you can understand the fundamental economic unit of the business, which is when I put $1 in here, I get this much juice on the back end back to me. So let me talk about what it looks like when it's done right. And this is where you start printing money. So I'm going to give you an extreme example that some of you guys may or may not have heard of them. So there's this little company called Starbucks that has a little coffee business.

You might have heard of them. They've got 38,000 locations. You want to know how they were able to grow to that scale without franchising to grow. Now, they do have a tiny little bit of franchising, but the vast, vast, vast majority of the stores are corporate owned. And so something that has cost that much capital opening up, you got all these new stores, you got these buildouts, you got marketing budgets for these local locations. How are they able to do that and do it privately? They made a lot of money every time they put a dollar into their economic machine. So let me tell you how much money they make.

Every customer that comes into Starbucks, the lifetime value, how much money they make from a customer is $14,099. And that has gotten $5.5 Macchiados at a time, $6. Frappuccinos at a time. And that means that they keep customers for years and years and years and years. It turns out that when you boil hot water and you sell for $6, you make a lot of money. And one of the crazy things about a business like Starbucks is that the cost you require customer for a local food business is typically very small. Now, I don't know their KAC,

and I probably could look into their public data and try and figure out how many customers they have, but I'll tell you that I had a personal experience marketing for a cookie company years ago. I ran ads locally for them to have a free cookie with a beverage. The average lead cost was under a dollar, and we got one out of ten leads in the door. And so it cost us $10 to get somebody in the door. If you have a $14,000 lifetime value and it costs you $10 to get somebody to walk in the door, you make a lot of money. And so that wasn't a five to one, a 10 to one, even a 100 to one return. That was a 1400 to one return. And that is how you build something that is absolutely massive. So once you get into business, whether you're at a million or three million or 10

million, whatever it is a year that you're at, you start to run into this wall becomes more costly to get customers because you're reaching out to colder and colder audiences. You're going new channels to find them, and it just simply cost you more. And so the only way to continue to scale, obviously you can make your ads better, you can make your offers better, but the other way to scale is to be able to afford to simply acquire customers for more expensive. And so let's say that Starbucks cost to acquire customer went from $10 to $50. Well, boo-hoo, still really, really good.

The point is that if you have a massive LTV to KAC ratio, your KAC can double or triple, and you're still printing money. And so that allows you to enter new marketing channels, new media channels, colder audiences, and outspend your competition. And so this is in some ways an ethical, competitive moat. There's two ways to have a monopoly. One way is that you have a way to undercut everybody in the marketplace so they can't survive and then eventually put everyone out of business because you have enough capital to do so.

Another way of having a monopoly that is legal is that you can literally just outspend people to get customers. And so most advertising marketplaces are based on an auction. So they auction for attention and the highest bidder is the one who wins the eyeball. They win the click. And so if you, in the purchase of the eyeball or of the click, you can outspend 100% of your competition, then you can ethically take all of their money and all of their customers. The reason this is so important as a business owner is that if you don't know these metrics, you might be able to get to a million, two million, maybe $3 million a year,

but you're not going to be able to scale beyond that because you're not going to have a consistent way to spend money on the front end and then know how much you're going to get to you. you're recouping and at what time. And so I had a business owner who actually was a business coach, ironically, who was doing $3 million a year. And I said, well, what's your LTV to cat creation? He was like, I don't know. And I was like, how are you doing this? Right. And I say this with love. I just said, know your data so that you can scale your company. I just kept repeating. He just kept asking me questions. I was like, you have to know your data so that you can scale your company. That's it. And these two data points are so simple to get. And yet so few businesses do it. And this is not,

a testament to the fact that you can see despite it, it's a testament to the fact that that's why so few businesses make money. I mean, shoot, only one out of every 250 businesses gets to $10 million a year. And getting to $10 million a year, you just have to follow fundamental business and know that I make $10 for every $1 put in. I want to run this machine as many times as I can. So let me break down a couple of these concepts for you. So you've got the LTGP and you've got CAQ, right? CAC is the easy one. Just whatever your cost is on a monthly basis is divided by a number of customers. You can look at this on a monthly basis. You can look at a weekly basis. And if you really want an accurate metric, look at over a year. Just say,

how much did I spend over this entire year in payroll for marketing, total an ad spend, total whatever? And you divide it by number of customers. It's back of napkin, but honestly, that takes out a lot of the volatility of campaigns, good sales guys or bad sales days, whatever, and it gives you a number that's realistic. This is actually how much it costs me to get a customer. Now, in the lifetime gross profit side, there's a few more numbers. So you have your price, most people know what that is and then you have to subtract at your cost of goods sold. All right now on a physical product business, if I'm selling books, let's say it cost me $10 to print and chip a book. If I sell the book for $20, then my gross profit is $10. Most people in the physical product space tend to get this

pretty quickly. What's interesting is that the service base guys don't get it at all. And so for some reason, they think, okay, well, I have, you know, five guys on payroll that do all of my delivery. All of the customers I get is just all profit. It's like, no, you have to take out the fact that you've got five guys on payroll and you've got 20 customers and you take that payroll and you divide it by 20 and that's what your cost of delivery is, which means that the cost of deliver may change as you get more customers. But you can model out what it looks like at scale. So if you know that every five, you need to hire another guy, then each guy is going to max out of this and you know that that's going to be your fixed amount of cost to deliver your service. And so the service guys tend

to get this more mixed up than the physical product ones. Now, once we know what our gross profit is, which is the price minus that cost, then it says how many times do I get this? And so that's a function of either the number of purchases they make or the number of months they stay. The number of months they stay, you can take the inverse of that, which is what percentage of people leave. And you can divide that and you can get that as a hypothetical metric. And so I'll give you an example. A lot of business owners were younger or starting out are like, okay, well, I've only been in business for six months. And so I don't know what my LTV is because people are still coming in and we're still growing.

You can actually still get a hypothetical on this, which is you just simply say, I had 10 customers last month. of the 10 that I started the month with, 30 days later, how many of those 10 are still with me? If nine are with you, then you have 10% churn. And so you divide your price by 10% and that gives you your LTV, which is the same as multiplying it by 10, which means the average duration they stay is 10 months. And that's why they call it lifetime gross profit. And so once you understand this, this gives you an enormous amount of power to do a number of things. So number one is I had a business the other day that came to me and was saying, hey, I have two front ends for my business. It was a hair salon girl. And so she was able to teach other hair stylists how to make extensions.

I think she was charging $2,000 or something like that to teach them how to do extensions. And then she also had like a business coaching thing where she helped them grow their business. And she said, I just, you know, I'm running ads for both of them. I don't know how I should structure my business. And it was like, okay, well, what's the LTV to KAC? She had done her homework. And so she said, well, this one, we make 34 to one, meaning her cost to get somebody who wanted to learn how to get hair extensions or how to put hair extensions in. It cost her like 30 or 40 bucks, whatever the math is there, on a $2,000 sale. And so she had a $2,000 sale, and so she was getting 30 to one on that. And so it cost her $67 to get a customer who's

going to pay her $2,000 for a digital product. So the rest of that's gross margin. Wow, what a great LTV to Kack, right? On the flip side, she had her business coaching thing, which she had something closer to like 7 to 1. And so that thing was $15,000, and it cost her, whatever it was, $2,000 to get the sale. And so she's like, well, I like these customers a lot, but there's fewer of them. And they cost more to acquire. And she said, so what should I do? Because these obviously stack up fast. You know, you get 10 sales, we get 150 grand a month.

It's not bad, right? And she's like, I got to sell so many more of these. And so I asked her these questions. I said, well, are there more of these people that just want the hair thing than these people? And she said, yes. I said, is there a percentage of these people that also buy this thing? And she said, yes. I said, great.

And so what we need to do is you stop advertising this. and then you make this the front end for this, and this becomes the back end. And so then all of your focus, after you acquire the customer, is to ascend these people into this thing, which means your cost to acquire customer for here becomes zero.

And then we can tack on 20% of this price to the total LTV here. And so this is how you start stacking LTV. The point is, let's say she got 20% of people to do the $15,000 thing. So that means that $2,000 becomes a $5,000. LTV. So let me break that down. So $2,000 is guaranteed because every person who buys gets that.

Now we multiply 20%, the number of them that buys the $15,000 thing, which is 20% times $15,000, $3,000. And you add that to the front end. So it means one out of five pays an extra $15. Great. So that means on average, I make $5,000. So that took her LTV to KAC from 30 to 1 to 75 to 1. That means that she can market even more aggressively and she can market to the biggest tam. Many of you have one or two or three different products or offers on the front end and you're trying to figure out what's the thing I should advertise Look at the LTV to KAC and then start with the thing that has the best LTV to KAC ratio and then stack behind it everything else and then that further increases your ratio of how much you can spend to get the customer to make more money So many business owners ask me questions that they can solve with math like this is an opinion thing

This isn't like well I talked to three mentors and one guy gave me this advice and like this is a math problem which is why you have to learn it. And so if you have a stronger LTV to KAC, the exception here is if the Tam is tiny, your total address in the more market, the number of heads that you can sell. But most of you were listening to this aren't even close to saturating your market.

You're like, I've sold 100 customers and my market is 1 million people. Okay, you don't need to worry about saturation yet. And so fundamentally, if you've got something that has an ocean of customers and you have a crazy amount of what you put in versus what you get out, you do as much of that as you possibly can,

and then you stack the other things behind it, to further increase your leverage. The last consideration that I'll bring up, which is already factored into LTV, is the operational efficiency. So let me explain. I had a business that we were looking at acquiring. It was a chain of glass repair. And they specifically focused on glass work for residential. And so they had a number of different customers that they worked with. They had high-end, you know, million-dollar plus homes. That would have those big glass, you know, things and weird bathrooms and whatever people do with glass. One of the partners from that business peeled off and started a chain only doing one thing in the entire product stack.

And so what he did was he did his homework. He figured out that shower doors were a product that was very easy to sell. Many people wanted it. There was a huge market for people who just wanted to replace their shower doors. And the delivery. So the cost of goods sold to deliver the door was actually very low. And so one guy could do five, ten doors a day, whereas doing the custom glasswork might take months.

So even though the ticket was higher, they could productize that service to such a higher degree. And the LTV to KAC was actually higher, even though the average ticket was lower. And so because of that, though, he could turn this into a machine that he could repeat again and again and again. And I had the same conversation with somebody who was in the pool design business. He said, well, I designed commercial pools. I designed resort pools. I designed residential pools. And I designed modular pools.

And I said, okay, how hard is it to do all these? And he's like, well, they're all kind of hard. But these ones, the modular pools are the ones that, like, I could do easily because it's only like six or seven variables and you just kind of plug them together. And I was like, okay, how is the margin on that? It's like, well, the margin is good there. And I also have a much faster cycle because you can, from the time they say yes, to the time it's in their backyard is really fast. And it's like, okay, are there more people who can buy modular pools than resort pools?

And he was like, yeah, okay, now we're starting to talk about something that looks interesting. And so he was like, what do I do? And I was like, well, this is a math problem. You have something that has a higher LTV to KAC, you have a higher TAM, and it's something, and this is just a side benefit. It's faster. So you have a way faster loop, and you can productize this to much a higher degree, whereas all of this stuff is custom and one-off stuff,

which makes it very, very difficult to scale. Many of you have a big resort thing and a modular pool. Many of you guys have custom glasswork in the house or a shower door. You want to find the shower door in your business that everyone immediately understands. They can come in that's really cheap. Many people want it. You can deliver that value quickly.

Now, some of you're like, well, I'm not passionate about shower doors. The question is what game you want to play? Listen, there's tons of people that are out there that say, like, follow your passion, whatever. In my opinion, this might be contrary. Business at the highest level is all the same. So if you succeed at your passion to a high enough degree, your business and what your day-to-day will look like will almost entirely be the same. You're going to be having a team of people who report to you.

You're going to have a head of sales. You're going to have marketing. You're going to have a legal. You're going to have IT. You're going to have finance. You're going to have some ops, maybe some tech, whatever. All those people are just going to roll into you. And so whether you're selling books or you're selling pools or you're selling shower doors, you're selling marketing agency services, if you succeed, taking to its natural end, you're going to be.

end up in the same boat. So I'd recommend starting with the one that has the highest chance likelihood of getting there. Because otherwise, what you don't want to have happen is have your passion turn into work. So what many of you guys don't know is that the first year of Jim launch, my LTV to Kack ratio was 100 to 1. I spent $100,000 and made $10 million back. And yes, it was that insane for me too. A lot of the wealth that I've been made is made in these punctuated periods of time when my LTV to Kack racers were absolutely absurd. And so when you have one of those things, and if you do crack this code, I highly recommend, jam as much as you possibly can do that, do that machine.

You think it's going to be illegal because you're making so much money. And that's okay, it's normal. Just keep pushing as hard as you can. Let's talk about how to improve it. So I've talked briefly about the LTV stuff, which for the most part is going to be decreasing turn, increasing price. Those are the things that are going to increase LTV. And having additional cross-sells and up-sells. I'll just give you the highlight reel of how to improve that.

You can increase the price. You can decrease the cost of delivery. You can get people to buy more times. You can cross-sell them additional things. So that's like if you buy a burger, you buy fries. You can upsell them a better version of the thing. So instead of this burger, you get a surloin or waggy burger. You can sell a higher quantity of that, one burger to two burgers.

You can downsell them, turning a no sale into a sale. So they would have been a zero. Instead of you get a junior whopper, you get a smaller burger. Or you go from a sirloin burger to a mystery meat burger. Right? And so that's the downsell. That gives you more better, smaller, worse, cross-sell different, more number of options that you sell, increase the price, decrease the cost of goods. And you can do that with any product you have. If I sell iPhone cases, I can increase the price of this case. I can become more efficient with the manufacturing to decrease the cost of my delivery to make this case. I can cross-sell a wallet that tax onto this. I can increase. I can increase. the likely they buy another case in six months by trying to say, hey, do you want to have different color cases so you can do them by mood? I can increase the number of cases saying, hey, do you want a spare case? I can increase the quality of the case and say this is a metal

case versus a plastic case. I can make this a cheaper case, or I could do in terms of the quality of the material or I could sell fewer units if I had that case. Every product that exists on the marketplace, you can find a better version, a more version, a cheaper version, a fewer version, a fewer version, a a cross-sold version, you decrease the cost of goods, you get them to buy more of them or you increase the price. Those are the ways that you increase LTV. And so if you want to improve your ratio, that's your homework for this video.

And you can show this video to your team and you have to check off those boxes. Okay, if we did have our book, how do we make this book make us more money? Well, I can raise the price of the book. I can try and buy volume of printing so that I can drive down the cost. I can spread out the books between three different warehouses

so that I can have cheaper shipping prices because it's closer to my customers. Those would be the first two, price and then cost of goods. I can cross-sell an additional book. I can try to get somebody to buy more of this book. Can't really get someone to buy less of this book. I could have a booklet or a summary version of the book that I could choose to sell. That would give me a worse or inferior version of the book.

In terms of decreasing quality, if I sold a number of units, instead of selling a three-pack, I'd downsell a one-pack. And so each of these, you can look at any product through these lenses and think is through each of those. Which of these is the easiest for us to immediately implement within our business that doesn't create operational drag. Me writing a second book, probably a lot of work. Me asking people to buy a second book, much less work. Now, let's talk about decreasing the other side. Remember, this is a ratio, right? And so you could not change anything about your

LTV and still massively improve the ratio by decreasing KAC, your cause to acquire customer. And so what do you do here? So KAC is a funnel, right? And so in order to decrease KAC, it's about efficiency. And so advertising always works. You always reach people when you input something into the system. If you make a post, you reach people. If you were to spend a billion dollars, you could reach everyone on earth, right? The idea is simply how efficient are you with that dollar? And so with KAC, everything is a percentage off of 100%. So you start with an advertisement reaches 100% of people. And then a small percentage of those people, click or take the first step. From there, you have a percentage of people that schedule, certain percentage

of people that show, certain percentage that buy, certain percentage that then upsell, whatever. And so as you go through this funnel to decrease KAC, you either have to get cheaper eyeballs, the raw unit that you're taking this price tag off of, or you improve the efficiency after you've paid for the eyeball to increase the likelihood that the person buys. In CRO, just like, so conversion optimization, just like LTV, oftentimes there isn't a silver bullet. I'd say the only thing that's the closest thing to a silver bullet in the KAC world is nailing your offer. Nailing what thing you're going to package together that you can put out the marketplace that everybody wants. you an interesting moniker concept around this is that I build LTV back to front, meaning I want to think about the most expensive thing and work my way backwards so that I can stack as much lifetime gross profit into my customers as I can. I think about CAC front to back. The reason for that

is that I want to optimize the things in the earlier parts of the funnel because they affect a higher percentage of people. You're often working with smaller percentages at the onset and bigger percentages later. And so I'll walk you through an example. So if your ad gets shown to call it 10,000 people and you have a 1% click-through rate. Well, me having a better ad might get a 3% click-through rate. There's almost nothing that's going to take my show rate. Well, there is nothing that's going to take my show rate from 60% to 180%. There's nothing that's going to take my close rate from 35% to 105%. Like, it's not going to happen. I like going front to back because in terms of order of magnitude of how much I can impact or grow the business or rather decrease the cost you acquire

our customer, I can have a greater impact from the front to the back. I'll make one, one tiny pro tip on this, which is that I in general work front to back for CAQ. If I have a clear outlier, if I have a 5% show-up rate, but everything else is amazing, and I know the industry average is 60%, well, then I do see that I have a 12x there that I can go get. It's just not often. And so most of the time, the biggest gains are going to come from improvement in advertising, improving the offer, improving the headline, and the availability of the team, if you have a sales team or if you have an e-commerce business, then it's going to be CRO on the page, the offer you're making on the page, the headline on the page, and the quality of the advertisements

themselves. And so whenever I enter any industry, and to be fair, at this point, I've seen so many businesses because we get so much deal flow at acquisition.com, I have a really good pulse for what it costs to get a small business owner for an SEO agency. I have a pretty good pulse for what it cost to get somebody to buy a $99 a month software package. I have a pretty good idea of what it costs to sell someone into a franchise, right? There's very different benchmarks that exist, but the good thing is it's very rare that you have truly novel businesses because more often you're selling to an existing avatar. So even if you have a novel business, you're still

selling the same person. So it's going to cost you about the same amount of money to get in front of those people and then convert them into a customer. Now, the variable will be what that person's worth to you, which is the LTV. But CAC is much less variable between different players. And so the reason that some businesses stay around forever and others don't is that the cac between the biggest businesses is oftentimes about the same. The difference is how much LTV they've been able to stack. And that is what creates that long-term competitive advantage for them. And if this was a denser video, this was literally just unpacking one ratio inside of business. And you have to get fluent with this. I'd encourage you to re-watch it or re-listen to this if you're listening to it. You

have to be able to breathe this stuff. This has to be your first language. If you want to get in business, this is the language of business. Your ability to conceptualize ideas is directly proportional to your vocabulary within a given domain. I create frameworks that people find simple because I'm fluent in the language. And I can draw pictures about it because I've had to think through it so many different times and so many different types of business so I could draw it. what is the difference between selling a book and selling an iPhone and selling SEO services and selling a franchise? Can you apply LTV to KAC to investing? Interesting. What's your cost to buy a company?

What do you make on that company over the lifetime? Interesting. It's just chunked up at another level where the product and the customer itself is really in the business. So this principle applies at all levels of business. The more you embrain it into your DNA and your lexicon and the language that you think, with rather than just what you speak with, but what you think with. Understanding that this is the ratio that drives the business means that you're going to ladder up the initiatives and the activities that you do in the business to drive one of these two sides. If what you're doing is not getting you more customers cheaper or making those customers worth more, then you are probably wasting your time.

If you're listening on the podcast, tag me on Instagram with which of those eight things, sell more, sell better, sell less, sell fewer, cross-sell, decrease cost of goods, increase price, which of those are the ones that you will use or can use easily in your business tomorrow. You can tag me on the grant.