https://www.youtube.com/watch?v=Cr0KdqZ954c

1 00:00:00.000 --\> 00:01:00.000 what's going on everyone if you've ever
struggled to figure out all the different numbers in marketing and
figure out what's important what's not important what's good what's bad
um and you just can't get your stuff to convert or you can't make you
can't make sense of all this stuff then this video is for you all right
so when i got into marketing there were so many different numbers kpis
cpl cpc like ctrs i like i was like i was i had no idea my head was
spinning i was trying to figure it out um and over time it's kind of
like you start to distill down what are the big buckets of things that
matter and then once you discover what those three are then you can open
up the drawer and look for more details and whatnot and so what i want
to do is outline the three numbers that i'm looking at at a high level
in any business that i'm looking to invest in or i'm looking to partner
with or whatever all right and i'll show you the relationship between
them that i am looking for and hopefully that will help you uh for your
own business so the first number is what my cost of acquisition is which
i call cac all right that's not i call it that's what people call it
right cost of acquisition or cac right so how much does it cost me to
acquire a

2 00:01:00.000 --\> 00:02:00.000 customer now this number should include
everything so that means your sales commission that means your ad spend
it means the marketing team that created the inquiries whatever your
software that's associated with it it's all of the costs of acquisition
put together that is cac all right number two is ltv now i define this a
little bit differently um because i think it's important so ltv is not
the total revenue that i'm going to get over the lifespan of a customer
but for me it's the total gross profit that i'm going to get over the
lifespan of a customer so let me give you a simple example so if i were
selling meals for example or selling food and my cost of uh of of
delivering food let's say was uh nine bucks all right and i know that
someone's gonna order seven hundred dollars a month of food and it cost
me nine dollars and i'm selling it for ten all right that means i only
have a ten percent margin on gross profit right gross profit uh on the
meal sold and so 700 um of food over the lifespan of a

3 00:02:00.000 --\> 00:03:00.000 customer might sound like a huge ltv
but the reality is it's actually only 70 which is what i'm going to make
on that customer right and so the reason i use gross profit is that if i
were doing marketing for food for example and uh you know my marketing
team was like hey man we're spending 200 to acquire a customer who's
going to pay us 700. i would be like that's horrible because we only
make 70 on the 700 which means that we're spending 200 to make 70. right
and that's why it's so important to understand the gross margin of your
business right because this is where all of your decisions should be
based off of all right it's on that margin the third number is what i
call 30 day cash all right now in the formal business world the fancy
world they call this they they use a different uh metric they call it
payback period which is how long does it take you to pay back your cost
of acquisition right because inherently whenever you're getting a
customer there's usually a cost that's

4 00:03:00.000 --\> 00:04:00.000 put into it and that cost might there's
always a cost you're either paying in time or you're paying in money or
you're paying in someone else's time which is then payroll hours but
there's always a cost right there's a cost of acquiring customer and
then you have uh the payback period i use 30 day cash for this reason i
think that virtually every business can gain access to a credit line
which means a credit card or an amex or even a bank and gallon you
whatever um where over 30 days they can they can use that money and then
pay it back virtually interest-free credit cards are all interest-free
for the first 30 days all right or at least all the ones that i'm aware
of right and so what that means is that if i can if i can know what my
30-day cash value is and if i can get that to be at least equal to my
cac then it means that i can use other people's money to acquire
customers and this is why we've had such big growth in the companies
that i've had is that i don't actually need to use my own money to
acquire customers i can use someone else's money acquire them get the
money in the first 30 days to

5 00:04:00.000 --\> 00:05:00.000 pay back the debt and now i'm left over
with customers and ideally customers and profit that i can still
continually upsell into continuity if you can understand the words that
i'm saying right now you'll understand how big of a deal this is all
right so what are the relationships that i'm looking for so for me for
ltv like if i'm looking at it because there's there's different
relationships that i need to draw here and when i'm looking about how
the marketing is working all right so my ltv to cac ratio i want to
always have greater greater than three to one all right three to one is
the number that i'm looking for which means that i need to be able to
generate more than three times the cost of acquisition in gross profit
all right so that means that let's say my gross profit i'll get a number
another number let's say that my gross profit on a service that i sell
uh is is eighty percent all right we'll use that as a number and so it's
80

6 00:05:00.000 --\> 00:06:00.000 is my gross profit and i have a
thousand dollar lifetime all right that's how much they're going to
spend with me over the lifetime which means eight hundred dollars is
what i am going to use as my number now if eight hundred dollars is what
i make then i have to three to one be able to acquire customers for less
than 270 or whatever two hundred 265.66 dollars right um so my cost of
acquisition has to be less than 266 dollars all right that's the total
thing now that's the first uh relationship that i'm gonna look at the
next relationship that i'm gonna look at is the 30-day cash uh
requirement compared to my cac and so for me if i have a one-to-one
relationship between my 30-day cash and my cac then that means that i am

7 00:06:00.000 --\> 00:07:00.000 breaking even on getting customers all
right and i'm breaking even within a window that i can use other
people's money to finance the acquisition and that's where this gets
super cool all right and so using the example that we just had if 260
dollars is what it it has to be under right for me to get three to one
then let's say that if i can just get my ah if i can get my 30-day cash
to be greater than 260 then it means that in the first 30 days i'm
breaking even in my acquisition for free and then i'm still going to
collect the other 500 in whatever dollars that's remaining from this
process and so those are the two biggest relationships that i'm looking
at what's my ltv to cac ratio and what's my 30-day cash to cac ratio all
right i want this to be greater than three times what it cost me to
acquire a customer

8 00:07:00.000 --\> 00:08:00.000 and that is how i know i'll have
sufficient profit to grow the business i want my 30-day cash in my cac
to be at least greater than one so that i know that i can use other
people's money opm to acquire customers all right this is what it looks
like visually \[Applause\] a person comes in the business let's say i
pay let's say i pay 200 dollars in cac all right so i'm now negative 200
this person now comes into my business to do you know they've got their
their little money they come into my business they decide to give me
money right now at this point this could be you know day one and this
could be day seven whatever because it depends how long it takes them to
give me money right and so maybe the first time they give me money they
only give me 50 bucks right i'm still negative but by day

9 00:08:00.000 --\> 00:09:00.000 30 let's say i have another upsell or
two and at this point now i've made two hundred dollars on this customer
what this means is that now i've covered my cost of acquisition and then
at the end of this point i'm going to continue to sell them or they'll
continue to buy let's say it's on recurring day 60 day 90 day 120 etc
and i was able to break even to then get all of this money that happens
on the back end for free that is the power of this concept and so to
summarize this the three numbers that you need to always know when
you're marketing is going to be your cac it's going to your ltv
important point is that it's the gross profit not the total revenue and
the 30-day cash that you can make per customer

10 00:09:00.000 --\> 00:10:00.000 and you need to break even on 30-day
cash to cac and you want this to be at least three times greater than
your cost of acquisition for you to have a viable business and that is
the game um that i try to play so anyways i hope that was valuable for
you i hope when you're looking at your business model you're looking at
your marketing and you have these metrics you can make decisions
empirically quantitatively and the nice thing is if something's below
these metrics then you just know that you have to fix it is there an
upsell or is there is there some sort of liquidation thing can we give
them some sort of special offer in their first week or two can we sell
them ancillary products and we have an affiliate relation can we refer
stuff out in order to increase this 30-day cash number the reason this
is important is if i can make this really really big then it means i can
spend more to acquire on customers which means i can even open up
further my acquisition net and still make more money and obviously the
amount that you add your 30 to cash is still going to add into your
total lifetime value of the customer so hope that was over for you hope
this makes sense for your business um this is how i think through these
things and i hope uh

11 00:10:00.000 --\> 00:11:00.000 hope you do too have an amazing day
enjoy and i'll see you next video
