what's going on everyone if you've ever struggled to figure out all the different numbers in marketing and figure out what's important what's not important what's good what's bad um and you just can't get your stuff to convert or you can't make you can't make sense of all this stuff then this video is for you all right so when i got into marketing there were so many different numbers kpis cpl cpc like ctrs i like i was like i was i had no idea my head was spinning i was trying to figure it out um and over time it's kind of like you start to distill down what are the big buckets of things that matter and then once you discover what those three are then you can open up the drawer and look for more details and whatnot and so what i want to do is outline the three numbers that i'm looking at at a high level in any business that i'm looking to invest in or i'm looking to partner with or whatever all right and i'll show you the relationship between them that i am looking for and hopefully that will help you uh for your own business so the first number is what my cost of acquisition is which i call cac all right that's not i call it that's what people call it right cost of acquisition or cac right so how much does it cost me to acquire a customer now this number should include everything so that means your sales commission that means your ad spend it means the marketing team that created the inquiries whatever your software that's associated with it it's all of the costs of acquisition put together that is cac all right number two is ltv now i define this a little bit differently um because i think it's important so ltv is not the total revenue that i'm going to get over the lifespan of a customer but for me it's the total gross profit that i'm going to get over the lifespan of a customer so let me give you a simple example so if i were selling meals for example or selling food and my cost of uh of of delivering food let's say was uh nine bucks all right and i know that someone's gonna order seven hundred dollars a month of food and it cost me nine dollars and i'm selling it for ten all right that means i only have a ten percent margin on gross profit right gross profit uh on the meal sold and so 700 um of food over the lifespan of a customer might sound like a huge ltv but the reality is it's actually only 70 which is what i'm going to make on that customer right and so the reason i use gross profit is that if i were doing marketing for food for example and uh you know my marketing team was like hey man we're spending 200 to acquire a customer who's going to pay us 700. i would be like that's horrible because we only make 70 on the 700 which means that we're spending 200 to make 70. right and that's why it's so important to understand the gross margin of your business right because this is where all of your decisions should be based off of all right it's on that margin the third number is what i call 30 day cash all right now in the formal business world the fancy world they call this they they use a different uh metric they call it payback period which is how long does it take you to pay back your cost of acquisition right because inherently whenever you're getting a customer there's usually a cost that's put into it and that cost might there's always a cost you're either paying in time or you're paying in money or you're paying in someone else's time which is then payroll hours but there's always a cost right there's a cost of acquiring customer and then you have uh the payback period i use 30 day cash for this reason i think that virtually every business can gain access to a credit line which means a credit card or an amex or even a bank and gallon you whatever um where over 30 days they can they can use that money and then pay it back virtually interest-free credit cards are all interest-free for the first 30 days all right or at least all the ones that i'm aware of right and so what that means is that if i can if i can know what my 30-day cash value is and if i can get that to be at least equal to my cac then it means that i can use other people's money to acquire customers and this is why we've had such big growth in the companies that i've had is that i don't actually need to use my own money to acquire customers i can use someone else's money acquire them get the money in the first 30 days to pay back the debt and now i'm left over with customers and ideally customers and profit that i can still continually upsell into continuity if you can understand the words that i'm saying right now you'll understand how big of a deal this is all right so what are the relationships that i'm looking for so for me for ltv like if i'm looking at it because there's there's different relationships that i need to draw here and when i'm looking about how the marketing is working all right so my ltv to cac ratio i want to always have greater greater than three to one all right three to one is the number that i'm looking for which means that i need to be able to generate more than three times the cost of acquisition in gross profit all right so that means that let's say my gross profit i'll get a number another number let's say that my gross profit on a service that i sell uh is is eighty percent all right we'll use that as a number and so it's 80 is my gross profit and i have a thousand dollar lifetime all right that's how much they're going to spend with me over the lifetime which means eight hundred dollars is what i am going to use as my number now if eight hundred dollars is what i make then i have to three to one be able to acquire customers for less than 270 or whatever two hundred 265.66 dollars right um so my cost of acquisition has to be less than 266 dollars all right that's the total thing now that's the first uh relationship that i'm gonna look at the next relationship that i'm gonna look at is the 30-day cash uh requirement compared to my cac and so for me if i have a one-to-one relationship between my 30-day cash and my cac then that means that i am breaking even on getting customers all right and i'm breaking even within a window that i can use other people's money to finance the acquisition and that's where this gets super cool all right and so using the example that we just had if 260 dollars is what it it has to be under right for me to get three to one then let's say that if i can just get my ah if i can get my 30-day cash to be greater than 260 then it means that in the first 30 days i'm breaking even in my acquisition for free and then i'm still going to collect the other 500 in whatever dollars that's remaining from this process and so those are the two biggest relationships that i'm looking at what's my ltv to cac ratio and what's my 30-day cash to cac ratio all right i want this to be greater than three times what it cost me to acquire a customer and that is how i know i'll have sufficient profit to grow the business i want my 30-day cash in my cac to be at least greater than one so that i know that i can use other people's money opm to acquire customers all right this is what it looks like visually [Applause] a person comes in the business let's say i pay let's say i pay 200 dollars in cac all right so i'm now negative 200 this person now comes into my business to do you know they've got their their little money they come into my business they decide to give me money right now at this point this could be you know day one and this could be day seven whatever because it depends how long it takes them to give me money right and so maybe the first time they give me money they only give me 50 bucks right i'm still negative but by day 30 let's say i have another upsell or two and at this point now i've made two hundred dollars on this customer what this means is that now i've covered my cost of acquisition and then at the end of this point i'm going to continue to sell them or they'll continue to buy let's say it's on recurring day 60 day 90 day 120 etc and i was able to break even to then get all of this money that happens on the back end for free that is the power of this concept and so to summarize this the three numbers that you need to always know when you're marketing is going to be your cac it's going to your ltv important point is that it's the gross profit not the total revenue and the 30-day cash that you can make per customer and you need to break even on 30-day cash to cac and you want this to be at least three times greater than your cost of acquisition for you to have a viable business and that is the game um that i try to play so anyways i hope that was valuable for you i hope when you're looking at your business model you're looking at your marketing and you have these metrics you can make decisions empirically quantitatively and the nice thing is if something's below these metrics then you just know that you have to fix it is there an upsell or is there is there some sort of liquidation thing can we give them some sort of special offer in their first week or two can we sell them ancillary products and we have an affiliate relation can we refer stuff out in order to increase this 30-day cash number the reason this is important is if i can make this really really big then it means i can spend more to acquire on customers which means i can even open up further my acquisition net and still make more money and obviously the amount that you add your 30 to cash is still going to add into your total lifetime value of the customer so hope that was over for you hope this makes sense for your business um this is how i think through these things and i hope uh hope you do too have an amazing day enjoy and i'll see you next video