How to Scale Your Business Fast

Summary

• I discovered a key business equation when I wanted to predict my gym's financial success.
• This equation helps answer tough business questions with three variables.
• It's called the "PI Equation," and it stands for inflow divided by outflow (not related to the mathematical constant π).
• Inflow is the rate at which new customers or revenue enters the business.
• Outflow is the churn rate, or the rate at which customers leave or revenue declines.
• By dividing inflow by outflow, you can calculate the hypothetical maximum size or revenue for your business.
• For example, if you gain 5 customers per month with a 10% churn, your business will cap at 50 customers.
• The PI Equation also helps determine the lifetime value of a customer by dividing their average monthly payment by the churn rate.
• Understanding lifetime value helps estimate how much you can afford to spend to acquire a customer.
• The equation also reveals if your business is growing, shrinking, or plateauing.
• The concept extends to overall revenue; signing up $10,000 a month with a 10% churn predicts a max of $100,000 monthly revenue.
• Growth usually slows over time due to churn, with business often capping out around 80-90% of the hypothetical max.
• I introduce the "Golden Ratio" to potentially achieve net negative churn, where business grows without paid advertising because the referral rate is higher than the churn rate.
• Understanding and manipulating inflow, churn, and price is essential for business growth.
• I apply the PI Equation daily to assess businesses I coach and to make quick, informed decisions.
• It's important to be consistent and not get distracted by new opportunities – stick with what's working.
• This simple yet powerful equation should be mastered by every entrepreneur for business clarity and direction.

Video

How To Take Action

Here's what you can do to use the "PI Equation" for your business or personal growth:

• First, figure out your inflow, which is how many new customers or dollars you get each month.
• Then, calculate your outflow or churn rate, which is how many customers leave or how much money you lose each month.
• Divide your inflow by your outflow to see the biggest your business could get. For example, if you get 5 new customers and have a churn rate of 10%, then 50 is the max customers you'll have.
• To find out how much money a customer brings over time (lifetime value), divide the average amount they pay each month by the churn rate.
• Knowing the lifetime value can tell you how much to spend on getting new customers.
• Use the "Golden Ratio" idea to grow your business without paying for ads. If your customers refer more people than leave, your business will keep growing.
• Stick to what's working and keep it simple. Don't lose focus by chasing new things.
• Practice using this PI Equation regularly so you get really good at it.

Remember these three parts: price, churn, and inflow. Focus on increasing the price or lowering the churn to make customers more valuable. Or increase inflow to get more customers. This is the key stuff for making your business bigger and stronger. Keep working with these numbers, and you'll be on your way to success.

Quotes

"This is the number one equation that I use in my entire life for business"

– Alex Hormozi

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"What if I just divided it by this and that would just tell me the number"

– Alex Hormozi

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"What's important about this is that the inflow is actually a rate thing"

– Alex Hormozi

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"I'm using rough math, it'd be less than two thousand, you want to be a three to one"

– Alex Hormozi

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"This is the equation, this is how everything that I do extrapolates off of this thing"

– Alex Hormozi