← The Game with Alex Hormozi
The Game with Alex Hormozi
13. Levels of Customer Financed Acquisition | $100M Lost Chapters Audiobook
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Levels of Customer Financed acquisition by connecting gross profit, GP and speed with CAC Cost of acquiring customer I see three levels of Customer Financed acquisition or cfa. CFA Level one. You make less gross profit from a customer than it costs you to get one in the first 30 days. You eventually come out ahead. It just takes longer. This means floating your business on life savings loans and lines of credit. A big risk and speaking from lots of experience is it sucks. And yes, you can absolutely make money this way over the long term and many big businesses make all their money this way. But you have to already have lots of money to do it and most young bootstrap businesses don't. So I avoid this when starting out. CFA level 2. You make the same profit from a customer as it costs you to get one in the first 30 days. I specified 30 days because any business can get interest free money for 30 days in the form of a credit card if you clear your balance before the end of the month. It works just like normal money. So you can just use credit to get a customer, pay it back, and then use it again to get the next customer at level 2. Since you pay off the card each month, your credit limit becomes your advertising budget. This means it caps to how many customers you can get. So if you have a $5,000 limit, you can only get the number of customers $5,000 will get. Of course, you can expand your budget by paying your balance off early, asking for higher limits, et cetera, or just getting another card. Now, the contents of the rest of this section will boost your gross profit and get you to level three. CFA Level three. You make more than double the profit from a customer than it costs you to get one in the first 30 days. This holds a special place in my heart. It's how I've scaled all my businesses. In principle, it means you can double your business every month or faster. Think about it this way. You pay the balance of your original spend. Then between the credit and extra cash you get to more customers. And if you only use the extra cash, you can ditch the credit altogether when the gross profit rolls in. From that point on, all customers pay for themselves and you can use your extra cash for whatever you want, including getting even more customers. CFA removes cash from your list of problems in life. As a reminder, making twice what it cost me to get a customer in profit is my minimum. My first year of gym launch, we got a hundred dollars back in profit for every $1 we spend. Yes, 100x spending $100,000 to make $10 million in returns we obviously scaled as much as we could from that, but then operations limited us not getting customers, and that's the goal here. If you wonder why bother getting new customers when I could just pay myself, I say why do one? We could do both. Once customers start paying for themselves, I can grow my business and pay myself. Best part is, when you do it this way, your business grows every month and so does your paycheck. CFA playing it out. You must pass CFA Level 1 to stay in business for the long haul. With a decent product and a good offer, you can bootstrap your growth to level two. Then you master money models. See 100 money models to unlock profitable hyper sailing at level three. And once you hit level three, cash to get customers is no longer a constraint to your business. To show you how powerful this is, let's play out level three for your business. And let's assume that you put all extra profits into getting more customers. Over the next 12 months, you go from one lonely customer to an army of 4,095 customers. Best of all, you'd only have to pay for the first customer. The rest of the growth your customers pay for. That's why it's called customer Financed Acquisition. They finance the acquisition of your new customers. The table below lays it all out, which I just show a table of going from month one to month 12 and a column for new customers required and then total customers required. It goes 1, 3, 7, 1531, 63, 127, 256, 5111-023204-74096. And that's only with GP at twice CAC, it can go much higher. And yes, something else will eventually bottleneck your growth. And that's okay. That's life. But you never want the bottleneck to be cash for getting new customers. And that's really what CFA is all about. Removing cash and by extension, customer getting as your limit for growth. If I can do that for you and help you achieve your vision, we've won. Solution explained. When you do this right, you don't need to have a lot of money to make a lot of money. The clients themselves are like preloaded bags of money who pay for themselves and the next customer. This is how we achieve forced viral growth. This is how my software company went from $60,000 a month in revenue to 1.7 million a month in six months. It's how my consulting business went from $250,000 a month to 1.8 million a month in eight months. It's how my e commerce business went from 80,000amonth to 1.15 million a month in six months. This stuff works. Now from this example, you could very quickly see that the bottleneck would not be the ability to acquire customers, but to service them. I'm not going to get into how to scale a company in this book. The objective of this book is to get you to the point where scaling rather than acquiring customers becomes your problem. It may seem crazy to you, but this is how you become unbeatable. So change your beliefs and you'll change your business and your life. The quote normal business example is what most businesses deal with on a regular basis. This is why the median small business owner makes $72,489 per year. That's according to PayScale. There's nothing wrong with that, but given the massive personal risk and investment we take on as business owners, it'd probably be easier to Drive Uber, make 70,000 a year with no risk, no investment and a complete schedule flexibility. We business owners take the risks and work our asses off because we believe in the promise of more. And that's why I'm hoping you read this book, the Promise of More Acquisition Masters in stark contrast, print money. It's the type of business and acquisition process we want to build. And the beautiful part about building an acquisition model like this is that anyone can do it with skill. At the end of the day, I believe that having a great business is a choice. Many do not believe they can have a great business. They expect 2 to 1 returns on advertising to be good enough. When in truth, with just a few tweaks, they could never spend another dollar on advertising again and let their customers pay for the growth of their business. That's what we're here to accomplish.