Brutally Honest Business Advice | Ep 878

The discourse presented showcases various perspectives and strategies on scaling and growing a business, focusing on maintaining profitability and cash flow during expansion and leveraging existing assets and resources.

Prioritize Profitability and Cash Flow Over Revenue In Expansion

The discussions reveal a consensus that profitability should be the central focus over mere revenue growth during expansion.

Ensure the Business Model Is Solid and Scalable Before Expansion

Alex Hormozi stresses that businesses should stabilize their lifetime value to customer acquisition cost (LTV-to-CAC) ratio before scaling up advertising spend and reaching a broader audience. This indicates the necessity of a solid, scalable business model.

Focus On Ebitda and Ltv-to-cac Over Revenue Targets

Hormozi further suggests incrementally increasing prices until it impacts profits negatively. He also provides a script for handling price increases with current customers to maintain loyalty. Audience members discuss various dilemmas, such as whether to cut off certain services or shift business strategies, to prioritize profitability.

Leverage Existing Assets and Resources When Expanding

This section explores the notion of leveraging what you already have as opposed to external growth mechanisms such as acquisitions or franchising.

Divest or Sunset Unprofitable, Non-core Business Lines to Free Resources

Experts urge the divestment or sunset of unprofitable or non-core business activities. For instance, an audience member is advised to stop expanding the less profitable part of their business and instead refocus resources on filling existing vacancies to restore cash flow.

Evaluate Opportunities: Acquire/Franchise vs. Organic Growth

The discussion then moves to evaluating growth opportunities between acquisition, franchising, and organic means. Hormozi expresses hesitancy towards franchising, especially for service-based businesses, due to standardization issues as compared to food businesses.

A participant who sold a consulting firm and regained ...

Alex Hormozi shares his strategies for optimizing marketing and sales to enhance customer acquisition, stressing the importance of volume, testing, and data-driven decisions.

Increase Volume and Testing Of Marketing Creative Content

Hormozi emphasizes the necessity of creating a large volume of marketing content and the need to constantly test and iterate to find what works best.

50+ Marketing Hooks and Angles to Test and Iterate

Hormozi advises producing a significant volume of marketing creative content, suggesting around 50 pieces a day, using a variety of hooks to engage potential customers. He discusses the importance of multiplying a single message by different hooks, suggesting that one can create 150 ads from one recording session by testing different angles.

Allocate Majority of Budget to Highest-Performing Content

Upon testing, Hormozi recommends following Google's 70/20/10 rule, where 70% of future creative is based on the highest-performing hooks historically, 20% on adjacent content, and 10% on wild ideas. He suggests looking back to identify what differentiated successful content from the rest and advises allocating most of the budget to content that performs best.

Leverage Data and Metrics to Drive Acquisition Strategy

Hormozi points to the necessity of using data-driven approaches to improve key business metrics and refine marketing channel selection.

Improve Key Metrics: Ltv, Cac, and Retention Rate

Hormozi suggests focusing on improving lifetime value (LTV), customer acquisition cost (CAC), and retention rates. He recommends including all marketing spend in CAC calculations, even if it's for nurturing existing clients, and assessing revenue over past years to get the most conservative LTV estimate, thus understanding which processes need improvement.

Test Marketing Channels to Find the Most Cost-Effective Approach

An audience member's query about issues related to ex ...

To bolster customer retention and minimize churn, several actionable strategies can be articulated.

Implement a Comprehensive Customer Retention Program

Businesses should initiate a thorough customer retention program that can engage customers effectively and enhance their experiences.

Engage Customers Through Touchpoints, Promotions, and Community-Building Activities

Alex Hormozi underscores the significance of engaging customers through various touchpoints, including promotions and community-building initiatives. Hormozi recommends offering lifetime deals on high-margin ancillary items and leveraging punch cards with several punches given upfront to increase the likelihood of return visits. Additionally, he suggests regular touchpoints that make a business feel like a small tribe, citing Dunbar’s number which alludes to a limit on stable social relationships one can maintain.

Promotional tactics like internal referral promotions, “fast cash Fridays” and weekly themes give customers a reason to stay connected. Seasonal themes like “Valentine’s day get fit” or “Lean by Halloween” are also proposed as strategies to engage customers and reduce churn.

Enhance Customer Experience to Drive Repeat Business

Hormozi advises shifting focus from concrete fitness results to ensuring a fun workout experience, noting that emphasizing results could be counterproductive. In terms of customer experience, it's crucial to ensure active users convert to paying customers; for instance, a software with 100 users might have only 40 active users, with a mere four paying a significant annual fee. Enhancing the customer experience is essential to retain these paying users and convert the others to paying status.

Evaluate Target Customer and Align Business Model

Businesses need to critically evaluate their target customer and align their model accordingly.

Consider Targeting Stable, Larger Customers if Current Ones Are Volatile

Alex Hormozi reflects on the attendee’s concerns about high churn rates and suggests low churn would follow if the quality of sessions is high, which implies that aligning business offerings to what customers want is critical. During the discussions, Hormozi also suggests that, in some cases, the problem contributing to high churn rates might be caused by serving customers that are too small. Hence, he recommends targeting larger, more stable customers as a strategy for reducing churn.

For instance, an anecdote suggests that a CRM for gyms faced high churn rates because a significant portion of gyms fail each year. This structural churn, which stems from the ...

Experts discuss critical aspects of managing cash flow and the importance of aligning financial considerations with business profitability.

Cost Structures & Profit Margins' Impact on Financial Health

Managing cost structures and profit margins is essential to ensuring the financial health of a business.

Analyze COGS, Overhead, and Compensation For Optimization

Effective management involves analyzing Cost of Goods Sold (COGS), overhead expenses, and compensation to find areas for financial optimization. As an example, Joris Smith notes that his company's compensation for sales reps might be too high, taking up 30% of the revenue. Adjusting these costs could improve profitability. Additionally, managing cash flow, such as streamlining collection processes in industries with long accounts receivable periods like construction, is critical to managing working capital requirements.

Ensure Pricing and Business Model Supports Profitability Targets

Leaders should ensure that the pricing strategy and business model support the business’s profitability targets. For instance, Alex Hormozi suggests experimenting with price increases to improve profitability. Similarly, pivoting a business model could involve refining target customer segments – moving from the lowest-reimbursing patients to lower-cost structures.

Leverage Financial Data to Guide Decision-Making

Using financial data to make informed decisions helps businesses find opportunities and prepare for challenges.

Track Key Metrics: LTV, CAC, EBITDA to Find Opportunities and Challenges

Hormozi emphasizes the critical importance of tracking key metrics such as Lifetime Value (LTV), Customer Acquisition Costs (CAC), and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Audience member #13 notes the EBITDA contribution is about 50-50 between their construction and service divisions, although construction requires more capital. Furthermore, Hormozi advises businesses to track the LTV by focus ...

The speakers discuss the importance of aligning business models with target customers and focusing on core competencies without expanding into unrelated business lines.

Evaluate Target Customer and Ensure Business Model Alignment

Hormozi talks about the significance of having a few offers that convert well and shaping the business around those, ensuring that the business model aligns with targeted customers, and focusing on core competencies related to customer experience and profitability.

Move Up-market to Target Larger, Stable Customers if Current Ones Are Volatile

Hormozi suggests targeting larger and more stable customers who typically have well-established sales processes and margins, which provides a more secure customer base compared to volatile ones. He observes that some retained customers may differ from those who have churned, hinting at characteristics such as the ability to close leads that might make customers more stable.

Low-cost, High-Volume Acquisition for Smaller Customers

An audience member serving working professionals who require short-term room rentals may need to adjust pricing strategies during scaling, potentially attracting smaller customers at a higher volume.

Prioritize Core Competencies and Maintain Focus

Resist Expanding Into Unrelated Business Lines

Hormozi urges assessing whether to focus on in-network services or maintain a premium, cash-pay service, encouraging companies to concentrate on their core competencies instead of moving into different or unrelated models. He also advises the audience member about the dangers of diversifying into too many areas.

He questions the rationale behind starting another enterprise unrelated to the current business, similar to selling newspapers or orange juice. Hormozi stresses the importance of focusing on more profitable and ...