7 Business Concepts You've Never Heard of (But Will Make You LOTS of Money) | Ep 656

The Game with Alex Hormozi · with Alex Hormozi · February 21, 2024 · 27 min

Summary

This episode breaks down seven critical business concepts that entrepreneurs often miss, focusing on how to analyze and optimize your business for maximum profitability and scalability. It provides a deep dive into understanding Lifetime Gross Profit (LTGP) relative to Customer Acquisition Cost (CAC), demonstrating how to accurately calculate these metrics and use them to drive sustainable growth. The episode also touches on return on invested capital for expansion.

Key takeaways

• Accurately calculate Lifetime Gross Profit (LTGP) by understanding customer lifespan/repurchase rate and true gross profit per transaction (price minus COGS, not revenue).
• Determine your true Customer Acquisition Cost (CAC) by including all costs associated with acquiring customers, not just advertising spend (e.g., labor, software, advertising).
• Aim for an LTGP to CAC ratio of at least 3:1 for sustainable growth; a 5:1 ratio is excellent and indicates strong business health.
• Apply the concept of Return on Invested Capital (ROIC) to business expansion, calculating how much profit each new investment (e.g., a new location, equipment) generates relative to its cost.

Themes

Topics covered

Episode description

(Watch the YouTube video of this episode HERE) “This becomes a business that you can scale endlessly and becomes an incredibly attractive business.” Today, Alex (@AlexHormozi) explores seven essential investing concepts that drive business growth and financial success. Through real-life examples, Alex simplifies complex financial metrics, including Lifetime Gross Profit, Customer Acquisition Cost, Return on Invested Capital, Payback Period, and Total Adjustable Market. Gain valuable insights on measuring and interpreting these indicators to make informed investment decisions, while also understanding the importance of these concepts for business scaling and risk management. Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth. Timestamps: (0:48) - Concept #1: LTGP:CAC (1:47) - Concept #2: LTGP (Life Time Gross Profit) (8:18) - Concept #3: CAC (Customer Acquisition Cost) (11:13) - Concept #4: ROIC (Return On Invested Capital) (15:54) - Concept #5: Payback Period (19:03) - Concept #6: Sales Velocity x LTGP (21:14) - Concept #7: Sales Velocity / Churn (23:22) - Concept #8: Total Adjustable Market (TAM) Follow Alex Hormozi’s Socials: LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Related episodes

• Stop Trying to Fix the Thing That's Working | Ep 978— The Game with Alex Hormozi
• How Birkenstock Built a $1.6 Billion Footwear Empire— Ecommerce On Tap
• How Google’s Conversational Commerce Is Changing Everything — Lucas Tieleman | Why AI Changes Search, How Conversational Commerce Works, What Product Feeds Hide, How AI Landing Pages Convert, Why Bad Data Fails (#485)— Ecommerce Coffee Break
• How AI is Revolutionizing Print-on-Demand — David Hooker | How AI Changes Print-On-Demand, How AI Creates Photorealistic Mockups, What Traits Make Sellers Successful, How Printify’s Global Fulfillment Cuts Risk, Why Gen Z Demands Personalization (#484)— Ecommerce Coffee Break
• The Bouquet Theory of Building a Brand From Zero | Ep 974— The Game with Alex Hormozi
• "How Do You Know When to Pivot?" Here's What 13 Businesses Actually Did— Shopify Masters

Frequently asked about this episode

What does this episode say about finance & fundraising?

Accurately calculate Lifetime Gross Profit (LTGP) by understanding customer lifespan/repurchase rate and true gross profit per transaction (price minus COGS, not revenue).

What does this episode say about analytics & attribution?

Determine your true Customer Acquisition Cost (CAC) by including all costs associated with acquiring customers, not just advertising spend (e.g., labor, software, advertising).

What does this episode say about founder & leadership?

Aim for an LTGP to CAC ratio of at least 3:1 for sustainable growth; a 5:1 ratio is excellent and indicates strong business health.

What does this episode say about finance & fundraising?

Apply the concept of Return on Invested Capital (ROIC) to business expansion, calculating how much profit each new investment (e.g., a new location, equipment) generates relative to its cost.

Listen

Listen on SpotifyListen on Apple PodcastsShow website