The Mathematics of Business, Explained | Ep 932
episodePreviously titled “The Mathematics of Business, Explained | Ep 990” — renamed by the publisher on Aug 2, 2026
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What is the host's business credibility and experience?
I've been in business for 14 years. Acquisition.com, our portfolio does over $250 million per year. Nine weeks ago, just at $106 million in sales alone, making the Guinness fastest selling nonfiction book of all time. We doubled the formal record. And so that is just my credibility for what I'm about to share with you, which is 12 of the most important kind of rules of thumb that I've learned or picked up along the way in my business career that you can use in to analyze your business to know where you are versus where you could or should be, whether this is a problem to solve or something that you just need to manage and pay attention to. And so this will help you allocate where you're spending your time within the business with a clear yes, no answer of, am I doing a good job or not?
So let's dive into the first one. The first one is close rates versus pricing. So if you sell people stuff, now this would be specifically for people who sell with a salesperson in person, or a salesman online, so on the phones, or Zoom if that's how you fancy it, I want to kind of give you kind of a tier ladder list to think through in terms of rules of thumb. And so the reason that there's a relationship between obviously price and close rate is that if you lower the price, we know our old supply-demand curves. If you lower price, demand goes up, et cetera. The idea is... If you're closing at 80% or more in whatever you sell, so four out of five people you talk to buy your thing, you are typically underpriced by three to 4X.
That might sound mind-blowing to you, but that is just the data that I've, again, loose of thumb, that I've selected over many years of business. Now, underneath of that, let's say that your close rate isn't necessarily over 80%, but let's say it's 60 to 80. So you're closing between, you know, three and four out of five who are there. You're probably underpriced by between two and 3X. So if you're currently charging 100, you might... definitely consider going to 200 and you might have a 250 or 300 in you and you'd be able to make more money. Now, the next tier above that is between 50 and 60%. So as we get close, you'll notice that the jumps compress. If you're between 50 and 60%, typically you're underpriced by one and a half to two X. So that $100 price point should probably be one and a half, so 150 or $200.
Now, if you're between 40% and 50% close rates, you're probably between 1.25% to 1.5x underpriced, meaning now you should be at maybe 125% or consider 150% as the bottom price point. Now, if you're like, okay, I'm at 35%. Well, you're between 30% and 40%, which for me is appropriately priced under the assumption you have all of the selling mechanisms in place to educate a consumer prior to the purchase so that you're not creating a pitch or a spiel. Instead, they've already consumed all of this stuff prior to the pitch. And then the entire close call is about personalization and helping them make the decision. That is appropriately designed sales motion. If you have that sales motion and you were closing 35%, you're appropriately priced.
Now, sometimes people have that close rate, but they don't have any of that stuff. And in those conditions, then you still probably have a double or a triple on your price if you set a proper sales motion in place. Now, if you're below 30%, so that means that less than one out of three people who you talk to buy, then you either have an avatar issue, you're selling to the wrong person, you have a sales motion issue. And I fix those two first before ever considering lowering price because it almost always is the thing that the sales team might consider wanting to do if you have a bad culture on your sales team or an entrepreneur who's afraid. But more realistically, raising prices is almost always the direction that businesses go in with one clear exception, which is if you have a business that has unlimited scale, let's say you sell a software product,
that pricing decision is going to be incredibly important to you because it balances two of the strongest influencers on the value of your company, which is going to be if you lower the price, it will also typically increase growth.
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Chapters
4 chaptersSpeakers
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