My business has stopped growing..what should I do?

Summary

• I recently spoke with business owners interested in joining acquisition.com as portfolio companies.
• I shared an important framework for analyzing businesses that can help you 2-3x your company instantly.
• As entrepreneurs, we need tools to make quick, informed decisions without heavily relying on finance reports.
• The key variables for business analysis I focus on are:
  • Number of new sales per month
  • Current revenue
  • Price of the offering
  • Churn rate (number of customers canceling)
  • Lifetime value (LTV) of a customer
  • Gross profit
• I highlighted a real-world example where a business doing 100 new sales a month, with a churn rate of 13%, could cap out at $770k a month or roughly $9 million a year.
• Understanding churn and lifetime value is crucial for business growth, and most owners don't know these numbers offhand.
• To increase business value, either get more customers or make them worth more.
• Reducing churn from 13% to 3% could raise the LTV per customer to $33,000 and the potential cap to $3.3 million per month.
• For enterprise value, private equity firms look for 80% yearly retention. High churn rates can severely diminish this.
• Buyers focus on three main aspects: growth, stickiness (retention), and profit. Combining high levels of these attributes makes a business very valuable.
• Knowing your business's hypothetical max with current models and numbers is essential. This knowledge identifies where your growth is capped and where to de-bottleneck.
• Believe in the theory of constraints: a business will grow until it hits the nearest constraint. Smart entrepreneurs find and remove these constraints for maximum growth.

Video

How To Take Action

I recommend analyzing your business with a simple, powerful framework. Let's start with the basics: know your monthly new sales, current revenue, the price of your offer, and your gross profit. Lots of people know these numbers.

Next, let's get into the two numbers folks often don't know but are super important: churn rate and lifetime value (LTV) of a customer. Find out how many people cancel each month to figure out your churn rate. Use that churn rate and your price to find out the LTV of a customer.

Here's a tip: a 13% churn rate is pretty high. If you can reduce your churn rate to 3%, you raise the LTV, making each customer more valuable. This increases the cap on your monthly revenue big time.

Growth, stickiness (that's customer retention), and profit are what people buying businesses look at. Aim for at least 80% yearly retention. This makes your business more appealing to buyers.

Knowing the biggest number you can hit with your current setup helps you see where growth gets stuck. To grow more, find out where the bottleneck is and work on that. Maybe it's marketing, the sales process, customer service, or something else.

Believe in the theory of constraints. Your business grows until it runs into a roadblock. Smart entrepreneurs find and fix these roadblocks.

Remember, you can grow your business one of two ways: get more customers or make your current customers more valuable. Keep track of these simple numbers, and you can plan how to lift your business higher without needing fancy reports.

Let's get your business growing by focusing on these key points!

Quotes

"If you are good at something, you need tools"

– Alex Hormozi

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"If you have to rely on your systems, if you have to rely on finance to get you the reports to get to make general directional decisions, then you're going to be weak as an entrepreneur"

– Alex Hormozi

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"All you have to do is multiply this by 0.9 and then you get the lifetime gross profit per customer"

– Alex Hormozi

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"You can only grow a business by getting more customers or making them worth more"

– Alex Hormozi

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"I believe that the smartest people in the world try and find how to do the fewest things that get them the most returns"

– Alex Hormozi