13. Levels of Customer Financed Acquisition | $100M Lost Chapters Audiobook
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What is the main topic discussed in this episode?
Levels of customer-financed acquisition.
What are the three levels of customer-financed acquisition?
By connecting gross profit, GP, and speed with CAC, cost of acquiring a 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, 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 two, 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.
How does CFA Level One impact business financing?
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 two, 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 two 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 $100 back in profit for every $1 we spent.
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.
What does CFA Level Two mean for customer acquisition?
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.
How can credit cards be leveraged in CFA Level Two?
You must pass CFA level one 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 hybrid sailing at level three. And once you get level three, cash to get customers is no longer constrained 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 dot, dot, dot, 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, 15, 31, 63, 127, 256, 511, 1023, 2047, 4095.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:00–0:04
2
What are the three levels of customer-financed acquisition?
0:04–0:49
3
How does CFA Level One impact business financing?
0:49–2:11
4
What does CFA Level Two mean for customer acquisition?
2:11–2:26
5
How can credit cards be leveraged in CFA Level Two?
2:26–4:25
6
What strategies can boost profit to reach CFA Level Three?
4:25–5:24