Chapter 1: 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.
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Chapter 2: What are the first rules of thumb for analyzing close rates and pricing?
It's probably like 5% of you here. For everybody else, that is kind of my point here, which is that you probably have an unscalable business, which 80% of businesses are unscalable and either service-based. And in those conditions, there's only one way you go in service, which is up.
Because if you play it out long enough, you get good, you get enough demand because you're good, you can't service everybody, so you chart, you go up, you go up in price. And then around and around you go, and the faster you spin that loop to going up in price...
the more you will progress in business because your gross margins will go up, your reputation will go up, you'll be able to hire better talent because you can pay them now, and it becomes a virtuous cycle versus the vicious cycle of trying to serve more people and paying less, having lower gross margins, hiring worse people, having worse customers at lower prices, and around and around you go into the toilet.
So that is the end, end all be all. That is the pricing ladder that I use between price and close rate, which brings up rule of thumb number two, LTV to cat. So you'll notice that a lot of these are relationships between numbers. And the reason that's important is it's not like, oh, your price should be this. That would be ridiculous. Every business is different.
But when we take two different pieces of the business, which is typically paired or antithetical in nature. So like an example of this would be like speed and quality. These are things that are going to be ratios. So you want to settle as many support tickets as you can, but you want to make sure that the support tickets are done right.
If you cleaned buildings, it would be, I want my cleaners to clean as many places as they can, as long as we still get five-star reviews or we still get retention, we still get referrals. So it's always going to be relationships between two things that are paired with career rules of thumb. And again, these are not Brendan Stone. These are rules of thumb. So let's get to the second one.
LTV to CAC. So for those of you who don't know, lifetime value, how much a customer spends with you, how much gross profit you make over the entire lifetime of the customer. CAC is cost of getting that customer to the door. So in plain speak, that's how much money does it cost you to make more money? CAC is how much money costs you. Lifetime gross profit or lifetime value is how much you make.
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Chapter 3: How does the close rate affect pricing strategy?
Now, a very traditional rule of thumb here in the software world was three to one. And this has been pushed all over the internet. And many businesses took that because all these big tech giants and very, you know, huge company CEOs talk about three to one as though it's a rule of law. And I want to say it is true under specific conditions, which only apply to like 5% of businesses.
So let me give you the other scenarios and what I consider to be ideal for that. So three to one, and this relates to, I don't have anything drawn. I'll draw three. So let's imagine.
Do we have overhead cam on?
Okay. You guys taking this? All right. So we have our attraction, right? How we get people in the door. That's number one. We have our conversion, which is how do we actually get them to give us money? Number two. And then number three, we have our delivery.
So if we were to use a binary scale of a zero or one, zero or one, zero or one, then we say, if we have zero, basically of unlimited scale, I put zero operational drag for attraction, conversion and delivery. What is that? That's probably a SaaS product, right? You can run ads to a checkout page and then the SaaS, the software does the delivery, right? All the way zeros all across.
And so for that, when you have all zeros, Three to one between how much it costs you to get a customer and how much you make is an appropriate ratio. But one of these three things includes a human. So let's give a simple example. You run ads to a checkout page and then you have somebody who does delivery. You have a human being who does deliver.
Well, as soon as that occurs or said differently, maybe you run ads to a salesperson and then you have some sort of lighter touch delivery on the back end. In any of these scenarios, I want to now have 6 to 1. Sorry, this is a 1. I want to have 6 to 1. Now, why would I double this? So let me explain.
As soon as you add a human to the loop, as soon as you add a human to the system, you're going to have lumpiness or inconsistency. So what do I mean by that? If let's use the salesperson example, you're running ads to a salesperson. As soon as you get to a certain point where you've capped that salesperson calendar, what do you have to do? You have to hire another salesperson.
And what happens when you hire a new salesperson? That person's not going to be as good as the main person, especially right off the bat and maybe even ever. And so we have to build into the business padding so that we can incur the cost of trading somebody up and also having them suck.
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Chapter 4: What is the significance of LTV to CAC in business?
But that volatility or the perception of volatility is a symptom of insufficient volume. You're not doing enough to get enough out. Now, if we expand the time horizon, let's say that we expanded to 30 days and let's say that you on average get three customers a month. OK, 30 days, three customers a month. That means you get one customer for 10 days.
And so that means that in 10 days, what we can reverse this into is that there is an amount of advertising that is occurring either through content, through word of mouth.
through outreach, through paid ads, whatever affiliates people are referring to who are partners or, you know, centers of influence, if you will, or we're sending you business, that in that 10 days, there's enough advertising for one sale to occur. And so the idea is, okay, well, if I can just look at the amount of advertising that I'm doing, probably haphazardly over a 10-day period,
and then do it deliberately instead of on accident on a daily basis, then I could take what I do in advertising in 10 days and do it in one. And if I do it in one, then I'm going to get the same outcome as doing one sale every 10, and I'll get one sale every day. And so the companies that are doing 30 times more sales than you are typically doing 30 times more advertising than you are.
And so I've put this in perspective. Many, I've seen, I mean, because obviously businesses fly out here every week. So I know a lot of numbers around what businesses are doing at different revenue levels. If I look at a $1 or $2 million business and I look at how much content they're putting out just on a pure volume basis, And the thing is, is like, of course, there's quality of content.
But the thing is, is if if you look at it across all pieces of content with the outliers already baked in that, you know, that one out of 10 or one out of 100 can be super outliers. Of course, the top 1%, the top one out of 100, the top 10%, you know, one out of 10. With that volume baked in, things tend to normalize again. And so we make, whatever it is, 450 pieces of content a week, right?
Almost 500 for simple math. So we're looking at 25, 30,000 pieces of content per year. And many of the people that are at $1 billion are doing something in the neighborhood of like one a day. And so they're doing 365 and we're doing like 25 or 30,000. And so we get nine or 10 times the, sorry, way more than that. Sorry, that's a thousand times more. a thousand times the outcome that they are.
Now you can even make the argument that I'm even less efficient than they are, but diminishing returns are still returns, right? So like if I do a thousand times more than you, but I get a hundred times the outcome,
And I think this is the piece that people really mess up is they see diminishing returns and then think, oh, I should stop because my return per action has gone down rather than thinking I'm still getting more and it's still worth it. And that's the part that I think most people who are smaller miss out on.
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