# How to Scale Your Business Fast

## Метаданные

- **Канал:** Alex Hormozi
- **YouTube:** https://www.youtube.com/watch?v=XZEjp2mP1U0
- **Дата:** 08.12.2020
- **Длительность:** 16:29
- **Просмотры:** 193,238
- **Источник:** https://ekstraktznaniy.ru/video/16728

## Описание

Download your free scaling roadmap here: https://www.acquisition.com/roadmap-yta25
The easiest business I can help you start (free trial): https://www.skool.com/hormozi
Business owners: Want to scale faster? We provide in-person advisory for companies doing at least $1M per year: https://www.acquisition.com/workshop-yta25

If you're new to my channel, my name is Alex Hormozi. I'm the founder and managing partner of Acquisition.com. It's a family office, which is just a formal way of saying we invest our own money into companies. Our 10 portfolio companies bring in over $250,000,000+ per year. Our ownership stake varies between 20% and 100% of them. Given this is a YT channel, and anyone can claim anything, I'll give you some stuff you can google to verify below.

How I got here…

21: Graduated Vanderbilt in 3 years Magna Cum Laude, and took a fancy consulting job.
23 yrs old: Left my fancy consulting job to start a business (a gym).
24 yrs old: Opened 5 gym locations.
26 yrs old: Close

## Транскрипт

### <Untitled Chapter 1> []

What's going on everyone? I've got a super special podcast/v video for you today. Um, what I want to talk to you about is how um to answer the hardest questions in business using one math equation that only has three variables. All right? And don't worry, it's like it'll be worth it. This is the number one thing. equation that I use in my entire life. All right? Uh for business. It's the one that I use most frequently. And where this all started for me was um I remember when I had my gyms, which is a recurring revenue business obviously. Um I just I wanted to know how we were doing, but you know, my data tracking wasn't great and I you know, it's just like stuff was all over the place and I just didn't know how well we were doing and what we were on track for and I just didn't know how it worked. And I was like, man, I wish I could just like see into the future. I wish I knew what this would end up like, right? And so I was uh playing around with math stuff and this is actually at a time when I was trying to get better at math because I'm not I wasn't naturally good at math. Um and so I would just like try and like write out what like how I would try and calculate this and I really struggled with it. And one day I was driving and it actually just hit me. I was like what if I just divided it by this and that would just tell me the number and it turns out I was right. And so what I want to explain to you is the number one equation that I use the most in all of business. Um and I call it the pi equation. All right. Now it has nothing to do with pi pi, right? Um and it has everything to do with any kind of just I mean really just all business. It is the sweetest equation ever. I love it. I use it all the time. All right. So what is

### The Pi Equation [1:35]

the pi equation? Why is it called pi? Um I actually think I was dieting at the time and so I called it pi because it looked like a pi when I drew it out. uh pi like the pie you eat. Um no actual real reason I call it this and for some reason it has stuck. All right. And so it is a simple equation. It is a

### What Is the Pi Equation [1:50]

division equation. All right. Very simple. Draw a big line here. All right. And what it essentially is I'll draw a smaller one here just so you can see it. Is inflow divided by outflow. All right. So why is this useful? So for me, I like to have a very good idea of where my business is at, where they were growing, whether we're shrinking, what if we just did this for the rest of a year or forever, what we'd end up at. And that is exactly what this question answers. What's important about this is that the inflow is actually uh a rate thing. So basically, you're dividing rates to get an outcome. All right? I'm not going to get like super into it uh because that's not what's important. What's important is understanding what it will give you, which is your hypothetical max, right? And it gives you three different hypothetical maxes. Uh so that you can calculate stuff for your business. All right? So for example, let's say I have an inflow of five new customers per month. All right? I get five new customers a month. And let's say that my churn on my membership or my recurring, my service, whatever, right, is let's say it's 10%. All right? So that's 0. 1 10%. All right. So if I want to know what the max amount of customers I will be able to have given this inflow, I can project that. So right now if I have let's say 30 clients, if I'm doing this and getting five new clients a month and losing 10%, it means that I will be growing because 10% of 30 would be three and I'm getting five, right? But at some point in the future, right, as I go on, there will be a point where 10% is equivalent to five. And at that point, I'd reach equilibrium. And so that is when I would have reached my hypothetical max. And so why this is so important is that when I do this little equation, let's say it's 5 / 0. 1, which is 50, right? Which means 50 is going to be my hypothetical max. So, I know that if I'm signing up five people every month and I'm losing 10% of my clients every month, that I will reach a business that has 50 clients on average. And I will not be able to increase that number ever unless I either increase the amount of people I sign up, the rate at which I sign them up, or I decrease the rate at which people leave. And that's it. Pretty cool, right? Like this equation has like changed my life. So what it does is it allows me to make very quick uh calculations to understand where I'm at, whether we're doing well, whether we're shrinking, etc. So for example, if we had the same equation where I said I had 30 people right now and I said I'm signing up two people a month, right? And I've got 10% churn, then I know that the hypothetical max of that is 20, right? Is 20, which means that I'm going to be shrinking from 30 to 20 over the next however many months unless I fix this. And so it gives me a very clear snapshot of what whatever I'm currently doing extrapolates into the future. Now, you probably already have some ideas of how you could use this in your business, right? This gives you a hypothetical max. It projects out your current rate so you can understand where you're going. That's the point. All right. Now, let me draw a little dotted line here. That is the first use of this equation. The second use is understanding lifetime value. All right. So, let's say that we have a client and the average revenue per client that we have per month, let's say, is uh $500. All right? So, let's say it's let's use a different number. I'll say $1,000. All right? That's a little simpler. All

### Understanding Lifetime Value [5:26]

right? So, $1,000 per month is my average revenue per client. Now, let's say that I can keep a $1,000 per month client uh for five months. So, my churn, right, the percentage that would leave every month would be 20%. All right? So 20% which would be 02 right is my rate of people leaving 20% of my customers. So if I have 10 customers two leave every month it's 20%. All right it's churn. Now when I phrase the equation or whatever when I frame it this way I can now extrapolate how much this person is worth to me. So, if I know that my average person pays me $1,000 a month, and I know that on average 20% of my customers leave every month, then I know that my customers are on average worth $5,000, which is 1,000 divided by 0. 2. Pretty sweet, right? So, now I know that if all customers that come to me, if I change nothing, are worth $5,000, then that gives me a number that I can go and market with. I know that I can spend at least a,000, $2,000 to go acquire this customer, right? I'm using rough math. it'd be less than 2,000. You would want to be a 3 to one. I'm not going to get into that right now, but that's the point here is that this would give me rough math to know how much I could spend to acquire a customer. That's super useful. Now, with these two things together, I can know where my business is going to stall. I can also see how I can manipulate these uh variables in order to know where my business is going to reach. Now I can also see if I'm increasing if I'm growing my business or if I'm my business is shrinking simply by knowing what my inflow of customers in versus my outflow. Now you can also do this on a bigger scale. I said it's three variations of the same concept. All right. Now let's say I'm signing up $10,000 a month of new business. All right. So this is the same concept as this what I was talking about over here where you know I'm signing up five customers a month. But this is just basically combining the first two things into one overall number. All right, so I'm signing up $10,000 a month of new business. All right, that's what I'm setting up in new business per month. All right, now if I know that I'm losing again 10% of my revenue per month, then I know that's 10%. Oops. Which is 0. 1, right? Or 0. 1. then I know that this business is going to cap out at $100,000 per month. Now, again, the reason that that's important and the reason that I use all three of these variations of this equation is because I can see if I'm shrinking or I'm getting bigger. If I know that we signed up $10,000 uh in a month and we're doing 10% turn and we're I know we're going to extrapolate out to $100,000 a month. But if we're currently at 200, I'm like, that's not good. We need to fix something. or if we're at 50, I'll be like, "That's awesome. We're gonna double. " But the thing is that you're going to double and then you're going to cap. And what's more is that as you do this, unless you have negative churn, which most people do not have in service- based businesses, what's going to happen is that your rate of growth is going to slow. All right? So, it looks like this. All right? And so, this is going to be your hypothetical max right at the top here. All right? And so what happens is you quickly like when you have zero clients, when you sign up 10 people, right? Boom. You have a huge explosion in growth, right? Percentage-wise, it's like a vertical line, right? But the next month when you have 10 and you lose two, now you have eight, but then you gain another 10, but you only gained eight, right? But then now you lose 10% again, right? So you lose or sorry 20% again, but now you lose three because 10% is bigger of 18, right? So now you drop down to 15, but then you add another 10, right? But now you're at 25. But you notice how the rate goes from 10 to 8 to uh to 7, right? The growth continues to slow down over time because churn eats out a bigger and bigger percentage, right? And so with this, you can know that this is going to be your hypothetical max. Realistically though, most businesses have enough volatility that once you're at about 80 90% of your max, which would be like right here, right? is realistically where you'll usually end up capping up because your your fluctuations in business are such that that's around where you're going to be. Now, I'm going to add in a bonus thing for you which is called the golden ratio. And so, the golden ratio is the way to beat this equation so that you actually never end your growth. Here's how it works. We're going to have two rates. So, you have the rate of people leaving, right? Leaving percentage, you can put that as whatever you want. The fancy word is

### The Golden Ratio [10:03]

turn. leaving percentage, exit percentage, cancel percentage, whatever. And then here you have your referral percentage. This is where things get magical. So if 10% of your customers were to refer a new customer every month and 5% of your customers leave every month, then you have 10% over 5%. And it means that your business will double every growth period or sorry it um basically it just it will continue to unendingly grow because the more people who come in from referrals a smaller percentage leave every month. And this is called net negative turn. This is where you have a business that grows faster than it turns on its own without paid advertising because your product is so good. That is where we all want to go. This is the promised land. This is the golden ratio which is what I call it. And when you can achieve this, you can grow forever. Now, real re realistically, you don't grow forever because you'll get big enough and you'll mess something up and then all of a sudden your referral percentage will go down or your turn percentage will go up. One of those things happen. But when you can achieve this for a period of time, that is when you have crazy growth, right? because not only are you getting customers from your normal acquisition channels, but you're actually the percentage of customers who refer, which is why it's important, uh, is it stays fixed and it's greater than your percentage turn. And so it just continues to grow and grow, which is awesome. Um, so as a quick recap for you, the pi equation is the most used equation that I use in all of business, especially if you have a recurring revenue based business. But even if you do not, it's still an awesome equation. And I use it in three specific ways. One is so that I can know whether I'm growing or shrinking. Number one. Number two, I use

### Recap [11:49]

it to extrapolate out what my current uh my grow acquisition versus my outflow rate, how much I'm going to uh level out at. This equation gives me that answer. To the same degree, it also gives me my hypothetical lifetime value per client. So, I can know that how much I can spend to acquire a customer because I can know exactly what they're going to be worth to me given their churn and what they pay me on average per month. And again, I can put all those things together into one number where I say I'm starting up this much new business per month and this much business is lo is leaving and this is going to be my overall number. This top number is going to be the overall number that I'm going to be able to generate per month in my business. All right. Um, and so putting all these things together is I use this equation. I mean I five times a day. I use it all the time. I use it when I'm coaching people. thinking about how we're doing. And this is the type of back and back math that I feel like every entrepreneur needs to have in order to be able to understand where their business is and how it's doing. And let me show you one more way to use this because like I said, I use this equation literally every day all the time. Um, and it's by combining two of those pieces. So, if I had uh like I said earlier, let's say I had $5,000 was the lifetime value, right, that I had calculated, right, which was based off of uh, you know, $1,000 per month. uh divided by uh 20% churn, right? That gives me my $5,000. Now, let's say that I know that I'm signing up 20 clients a month, I can know that simply by these two numbers, if I know what my inflow is, 20 clients a month, and I know that they're going to be worth $5,000 total, then I know that my business is going to level out at $100,000 per month. All right, this is like the biggest thing ever. This is how this like the whole game works. Like this is the equation. This is how everything that I do extrapolates off of this thing. All right. And so 20, right, per month. Now, here's where it gets tricky because you're like, "Well, that makes sense. It's math. " Yeah, but it doesn't look like that when you're in it. Because when you're in it, you signed up 20 customers and you're at $1,000 a month per customer. You're doing $20,000 a month. And you don't know if you're doing well or not because you don't can't see into the future to see that if you just keep doing what you're doing and you don't break it and you don't get entrepreneurial ADD shiny object syndrome. If you just keep doing what you're doing and every month you drop another 20 in, right? then you're going to get to $100,000 a month, right? It takes time for recurring revenue businesses to gain traction. And so if you understand this, it can give you kind of this peace of mind in understanding where you're going, where you're at, whether you're growing, whether you're shrinking, and what you need to do to fix it. Because with these equations, you can say either I have to increase the lifetime value. I have to by either increasing the price or decreasing the churn, which is one of those two things, or I have to increase my inflow. And simply by understanding those three pieces, piece number one, which is your price, piece number two, which is your churn, piece number three, which is your inflow. If you understand those three pieces, then you can understand exactly how to make your business however big you want. So that is the pi equation. This is the most used equation that I use. I wish I could have a sexier title for this um because everyone needs to watch it and understand it in absolute depth because this is everything when I talk to a business owner when they're struggling, when they don't know what to do. This is what I use. This is it. Like use when I'm trying to figure out their business. I'm like, "What's your inflow? What's your turn? What's your average price per user? It's the first thing I'm asking. Literally, it's the first three questions I'll ask. And then I'm like, what's your revenue right now? And just by knowing that, I can know whether they're growing, whether they're shrinking, how fast they're growing. I can know where they're going to level out. I can know how many customers they're going to level out at. I can know all of these things simply by asking those four pieces of of data and having this equation in my back pocket. And so, I use this every day. It's like I breathe this equation. And the more you play with it, the more you understand it, uh, the more powerful you'll be as an entrepreneur. And I promise you, it will be worth mastering. So, anyways, hope you enjoyed this. Hopefully, uh, you like this, uh, leave a review for, you know, the podcast or if you're watching this on YouTube, leave a nice review, subscribe, all that kind of stuff. Um, otherwise, keeping amazing. Uh, I'm rooting for you and talk to you soon. Bye.