The Mathematics of Business, Explained | Ep 932

23:18And 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. He said he has boiled down, like however many years of doing all this research and stuff into one number, which is you're resting hard 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 of that number would be your lead response to that. And the reason for that is like, it's how you do one thing is how you do everything.

23:46And I have some elements that I 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 afford to hire somebody to call my leads in that speed. 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.

24:21You 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 LTP 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 tag these areas first because there's huge returns for minimal effort. Talk about, you know, maximizing, optimizing. For the love of God, please call your lead quickly.

24:58sorry, we're passionate about that one. All right. I think the spirit moves. I'm sorry. I don't take it back. We can just move on. Okay. Which brings me to rule number five, 70 % calorie 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, 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.

25:38Number one is that your total lead conversion will go down. You will make more sales because they're booked out for sure. Absolute will go up, but your, your conversion rates will go down. Meaning your CAC, the cost to acquire customers will go up. Um, 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 short rates on further on appointments compared to sooner appointments goes down.

26:11Number two, short 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. Short 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 op-ed. What are they also not doing? They're not following up on the calls that they should just, they have six inch plus, they have some tip-ins that they need to do that they just aren't doing because they're all calls today. And rightfully so, they should be focused on, like they should reasonably focus on the leads that are in front of them.

26:41But 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. So 70 % of their calendars empty. The problem with this that I 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 will have kind of commission breath. They're like, I have to close the sale, right? I'm not going to get paid. And so it's a balance between both those things.

27:14So I found 70 % is kind of the sweet spot. I don't let it get above 85. And I try not to let it drop below 60. And so that's kind of giving you a range. I would say 70, 75 is right around the sweet spot for this. And I'll explain the reason why. When we see conversion rates, as in we get 100 leads, we want to maximize the conversion of those leads. Functionally is what a sales team is supposed to do. 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.

27:48Both of these things increase show rates. Number three, we want to have the salesperson have enough blank space in their calendar so they can work their pipeline and bring 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 a famine, if you will, and 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, on the high weeks, we'd make so much more money.

28:23Well, how do you do that? You typically need to hire more salespeople. And I'll say, as a personal note, I have yet to make less money by hiring more salespeople. 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 amount is. So they're always striving.

28:54They'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, you know, entrepreneurs will, hey, do I need to choose 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 felt very aggressive. Payback. 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 within 30 days.

29:27So payback period in general is how fast you get the money back from what it costs 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, that it means that you can grow that money out of pocket. And that allows you to have limitless growth. If I can take$100 of credit card money, which I don't have to pay anything for until the end of the month, and I can take that$100 and go get me a customer, and at the end of the month, make that$100 back, then at the end of the month, I owe no one anything, and I now have a customer.

30:02That is the power of this. Now you can repeat that ad infinitum, which is Latin for lots of times. It's into infinity, but let's not get, let's not get too tactical. So the reason that I use that 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 LTVD CAD could jump launch of 101. It didn't stay 101. It was 101 the first year, right? And over time it ended up being somewhere that you're going to have 30-ish to one. But the idea, because as you scale more levels of infrastructure will get introduced to the business.

30:37And 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.

30:48You can, 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 myself, 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 pull 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?

31:23Like if you're going to go head to head with, you know, Apple, then sure, they can, they don't need to get their money back in 30 days. 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. 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, which is all the investor bros.

31:55Now, all the guys who have outside investors, I promise you, you will get investors frothing at the mouth if you can show that you can get payback grade within 30 days, number one. Number two, if you have payback grade within 30 days, guess what you also don't need? Investors, because you don't need their money discount, which gives you a huge amount of leverage into when you're getting into your fundraising period. Now, that's the one out of 25. For the other 20 out of 25 of you who are bootstrap business owners, y 'all are like me, which is that I like Bank of Alex is what's funding this stuff.

32:27And so we have to think, are there initiation fees? Are there setup fees? Are there is there an 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 up front with my services? Can I sell a bundle of an extended period of time to cash flow day one? Can I do a buy one get two? Can I get them to pay for the last month up front. All of these are different tactical versions of solving for the same problem, which is I want to pull 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 first 30 days, period.

33:12So 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 we go. Rule number seven, gross margins. So gross margins are wildly misunderstood, which is interesting. If you are a business owner, you have to learn the language of business. All right, it is for sure. There are different languages, but 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.

33:51That'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? but your gross margins are very important because it is what dictates everything else in the business. So what do I mean by that? It's like your net margins cannot exceed your gross margins.

34:23Think 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 can 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?

35:00And they sell out of their own wallet in two different ways. they sell 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 because 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 have more people. The other reason they sell 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 or two or three right and so the idea is that like i like if you're good at fixing cars right you're like well it comes naturally it's not that hard you got to 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.

35:58Now, 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 hard computations 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. Cost me a hundred bucks a month. Okay. That's what it costs me 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'm going to show you two different scenarios here.

36:35So at 80%, at 80%, this a hundred dollars, I have to have$500 has to be my price. Okay. At 70 % and I have$100 costs. Hold on. Who can do this math for me? All right. I got to do this. All right. 100 equals 0.7. Julian, you were pre-med. Do it for me. All right. I'll tell you this. I'll tell you what it's like.

37:13Equals$1 ,000. Where is it? We're, we're, I need Jack S's GPS needs a lot. Thank you, gross alons. 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 a hundred divided by 0.3 is what it should be. So 100 divided by 0.3, right? It's 330. Thank you. So that would mean that 233 should be 70%. 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 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 year.

38:09Okay. 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? You double, you make way more money. And sometimes it means a lot more than that, because sometimes the incremental margin is all margin, whereas every dollar of revenue up to that point covered costs, right? And so what is our, we make$233 here, right?

38:48We 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 are not. And so this is why I'm so adamant that 80 % is my minimum. I tar, 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, 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 got to cover rent.

39:27I got to cover admin. I got to cover insurance. I'm going to cover marketing. I'm going to cover sales. I'm going to cover everything else with just this 30 % so I can have 50 % left to them. Is this ringing with you guys? Is this making sense? Even if it's a service-based business, bro, this is for service-based businesses, not to eat in Australia. This is for service-based businesses.

39:54And this may, this is why, like, so ideally i like to have i mean again this is minimum and i know this is going to 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 that's a service business so 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.

40:34And so you might have salt and salt and you got FSG salts and whatever, you know, pink Himalayan. It's salt, right? And so how do we make these two things different? We have to bread. 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? And for those of you who don't know, I wrote a book on this. It's called$100 million Offers of 27 ,000 five-star reviews.

41:05You should read it. But I want to draw this because this is 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, Again, sometimes this is the fundamental mathematical problem of 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 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.

41:38That math was tough, wasn't it? All right. So let's do rule number eight, rule of thumb number eight, if you will. 38 cash collected. So this is an add-on to the 38 payback period. So what is the exact amount of money that I want to have collected within that 30 days? It's going to be COG. 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 cut. Okay? So the cost of getting the customer and the cost of whatever we got them, heck, we want both those things together.

42:28We want whatever we collect to be greater.

42:40we want the gross profit or the cash we collect in that first 30 days to be greater than this plus this the reason this is so magical is that once this occurs 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 that is why it's so magical and so that is what the whole point of this 30-day cash collective thing is we want to pull it forward cool great now manufacturing study with zorro no manufacturing you're gonna have different margins because you have cost of goods 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 a few percent crossword But with services, for human services, I had that as my rule of thumb, is that I always want 80 % or higher gross margins.

43:32Okay. That brings us to rule number 10, which is functionally rule number nine, but we're calling it 10 because I skipped number two. Let's just go. Which is churn and retention. So 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 exhausted. And so you want to be, and this is John Paul DiGiorgio, is the quote from him.

44:07He 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. And so what happens is people would typically try to scale too fast before they've actually figured out revenue retention and churn.

44:37And so what are, quote, good benchmarks? Well, good benchmarks for anything B2B is you probably want to be above 80 % in terms of retention annually. So that means that if I get 100 customers, Gen 1, right? So this is January 1, let's say 2025. Gen 1, 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 and they come January 26, 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.

45:20We'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 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. 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.

45:56Doesn'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.

46:18a lot and so think about two businesses and this is why this is so important the cost of getting customers between different businesses is typically very 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 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 relatively the same thing, the cost of getting customers there is typically about the same. Here is where one business can become 5, 10, 100 times more valuable is that those customers are worth 5, 10, 100 times more to the other business.

47:03And so they are able to play a huge arbitrage game so they can spend way more money in the acquisition than the business that only has, call it, 50 % retention. This guy's getting 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.

47:38And so for each of these numbers, as I'm sharing them, it's 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 a, I'm going to scale problems, right? When you scale problems, they just get meaner and 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, which is why most entrepreneurs can't scale. So rule number 11, what is a good rule of thumb for how many people prepay? So a lot of you guys, some of you guys follow my stuff.

48:08I'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 a gift of the year. Can't really churn out, right? What benefits happen when you prepay? Well, if you prepay, you get all that cash today. If you get all that cash today, we can do that cash, go get more customers, right? Think about this. Everybody here should at least give a 10 % discount for getting paid in full today. Why? because the value of money today is typically at least, or at least the same value that money in a year will be worth 10 % more.

48:43At minimum, you could take the money, put it in the darn stock market, right? And then wait a year and it would be worth 10 % more. And so like at minimum, that is the amount that I'm willing to give to pool cash forward, all right? Now, what percentages, rule of thumb, should you expect? So let me give you a comment. so um if you have uh call a a like a buy 10 get 2 type deal like you pay for 10 months and you get uh you get two for free you can expect somewhere in the neighborhood of like 15 to 20 percent of people to take that off all right if you give uh 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 deliver something to them faster?

49:35How can I make it less risky? And then how can I make it easier? So if I say, hey, 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 accrued. Hey, if you 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 moderate discount, less one or more of those kind of like ancillary benefits that I just rattled off, you should expect 30 to 40 % of people to prepay.

50:14That's a monster difference in terms of cash forward. Now, simply off-road that for many of you, if you're not doing it, we'll pull cash forward. Now, a corollary is whether you have a third-party financing company. Now, this is directly from a firm. 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 just say that. I hate it a little bit. And the metrics that they quote is a 35 % 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.

50:54So 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'll put this little caveat in place, which is that financing will not save your business. If your food stops at your restaurant, financing it will just get more people to find out that the food stops faster. All right. So I've never seen a business get saved by this, but I have seen businesses grow for sure by making some of these deals and putting them in place.

51:24Now, let me give you a couple of payment structures that you can use 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, I say, great, let's split it. Half now, half in a month. Now this is a 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.

51:54I still want to get paid now and in 30 days because they got the money. I might as well ask, right? The worst they can say is no. 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 12 month, I want to pull that cash forward. Now, a little pro to begin is always ask 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 wage, you can ask when they have the majority of their deposits hit, when they are the most cash flush in the business, and then you can set it for those dates.

52:31You do not need to coordinate payments with your delivery. Now, one of my favorite methods of payment so that I can pull cash forward is something that came out of the Depression in the 1930s, which is something called Leo. It might be something as old as time. I'm sure it was in 2000 BC, but I just know from the Depression because, of course, I lived there. at that time. It's, the way it works is simple. You start paying now and when you finish paying, you get, very stressful. So, you can, I remember, and I remember the first time I did this. I had, I was selling, this is with Alan. I was selling, we had this big onboarding because what, Alan was hired, that kind of enterprise staff.

53:12So, we would sell to agencies. It was$25 ,000, it was a white label and then they would use it kind of as their own operating system. And so, it cost 25 grand to kind of like get onboarded. And so I would do two agencies at a time. We'd do as a full day onboarding with me and my team, and we'd help them get set up, walk them through everything, et cetera, right? Now, I remember having two partners who were on the phone. They're like, 25 grand. They're like, that's awesome. And then they said, can we split into payments? And I said, sure. And they said, well, how many payments can I split up to?

53:42And I said, as many as you want. And they were like, oh, amazing. We'll just fan, you know, we'll just do 2 ,000 bucks a month. And we'll pay it off, you know, this year. And I said, okay, cool. So we'll just sit your onboarding for a year from now. And they were like, oh, we got to like pay before we come in? And I was like, yeah. And this is why it was such a reinforcing moment for me. They just said, oh, okay, well, we'll do half now and 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.

54:18They 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. 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 X-Men. Cyclops had that orange pair.

54:48I think I was 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$160 sunglasses, which is absurd. But I think they were$120 or$160 at the time, inflation. And they were the hottest, coolest sunglasses. So anyways, I save 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. 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, which was also a great lesson.

55:25And like, sometimes you got to just learn to spend money and enjoy what you spend. A different thing for a different time. 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 that you can accelerate cash flow in the business. I'll give you a, let's see here. 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 kind of conversion metrics.

55:58So one of the simple ones would be like, if you're doing, because I think there's so many variations. So it's like, if you're closing off of meta 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 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.

56:33And again, that's leads, not shows, right? People who are there during the offer. that's just overall, like you had a hundred people opt in for webinar. All right. If you have a salesperson that's in person, right? 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 I will fix the process before I would even consider lowering the price. Web pages, most times it's going to be between one and two percent in terms of conversion rate on those pages.

57:09I'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. And 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. 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. It's one out of four clicks buys. Now, when you trade off, when you have a platform like an Amazon, right, is that I'm not making all that money.

57:46Amazon'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 two and a half percent. 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 making three times as much money, right? But you just have to understand the difference between those things. I'll leave you with a final rule number nine, which is my, I'm filling the holes back up for rule number nine. Anybody remember Love Potion number nine?

58:15I might be dating myself. That was a movie. You can Google it. Anyways, I'll bring this up, which is this. Industry averages are dumb. And so what do I mean by that? the amount of times I've had a conversation where someone says, hey, you know, manufacturing, these margins are pretty good for manufacturing. Or, hey, you know, our margins are this in our industry. 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 what'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 and play the way and that is just something that is that has really served me well which is like Like somebody will come into a space.

59:26We'll say, well, you know, you'll learn, you know, I don't know if you guys have seen this clip 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, you know, how do you feel being so young? You're coming on the Masters tour. And he's, I don't know how it gets to him. 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 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.

59:59Like it's so visceral. Like the moment is amazing. 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 use, I'm not going to, I'm not going to operate within your frame of reality. Like, why would I operate within the frame of beliefs that with the average person has 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 have accepted that you are no longer going to try to get better.

1:00:30And I just wholeheartedly reject that. 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 is only 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 that we cannot get this outcome that we desire. period. So I'll get asked the question, like, do you think you can have 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.

1:01:06You know what his margins are? Net? 70%. Net. Well, what does that mean about his gross margins? That means they got to be way above 70. You want to know 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 how. So if you think about what a business is, a business is functionally a black box 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.

1:01:53That 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, 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, uh, that I've learned, uh, 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. And I hope they serve you as much as they've served me.