From: alexhormozi
The Client Financed Acquisition (CFA) strategy is a method for business growth that prioritizes immediate profitability from customer acquisition, enabling companies to expand without relying on outside capital or investors [00:00:16]. This approach aims to generate more cash from a new customer within a short period than it costs to acquire and fulfill that customer, effectively allowing customers to fund marketing and acquisition costs [02:08:00].
The speaker emphasizes that this concept has been central to growing portfolio companies to approximately 1036 investment [00:00:01].
Core Principle: Playing the Game Differently
Unlike traditional business models that might anticipate two to three years to reach break-even or profitability [00:00:31], CFA focuses on making money “all the time” [00:00:45]. This mindset shifts the variables of the game to ensure continuous cash flow, making the process less stressful and more enjoyable [00:00:48]. By plugging into “the universe’s money” (i.e., customer payments) rather than one’s own [00:02:14], a business can cash flow nearly anything it needs [00:02:19].
If the money collected from a new customer within the first 30 days, after accounting for fulfillment costs, exceeds the cost to acquire them, the business achieves a “negative acquisition cost,” meaning it profits from acquiring customers [02:35:00].
The Client Financed Acquisition Equation
The core of the CFA strategy is encapsulated in a specific equation, which is also a process [01:59:00]:
30-Day Cash > 2 * (Cost of Acquiring Customer + Cost of Fulfilling Customer)
[02:57:00]
Let’s break down each component:
- 30-Day Cash: This refers to the net free cash flow collected by the business within the first 30 days of a customer entering its world [03:57:00]. It specifically excludes future upsells, downsells, or continuity payments, focusing solely on immediate cash [04:09:00]. The 30-day timeframe is crucial because it aligns with the typical interest-free financing period offered by credit cards, allowing businesses to leverage external money without incurring interest [04:19:00].
- Cost of Acquiring Customer (CAC): This includes all expenses related to bringing in a new customer, such as the marketing team, sales commissions, and advertising costs [03:07:00].
- Cost of Fulfilling Customer (CoF): This is the expense associated with delivering the product or service to the customer [03:25:00].
Example Calculation
Using a simplified example:
- Cost of Acquiring Customer: $100 [03:08:00]
- Cost of Fulfilling Customer: $100 [03:29:00]
- Total Cost (CAC + CoF): 100 = $200 [03:31:00]
According to the equation, the 30-Day Cash must be greater than twice this total cost:
2 * $200 = $400
[03:44:00]
So, if a business makes 200, it has a net profit of 200 can then be reinvested to acquire and fulfill another customer, generating another $400, and so on [05:03:00]. This creates a self-financing loop for customer acquisition and company growth [05:15:00].
While the minimum requirement is to make twice the costs, ideally, a business would make significantly more (e.g., 10 times the costs) to have even more cash flow for other investments [06:04:00].
Impact and Benefits
This strategy offers significant advantages:
- Unlimited Customer Acquisition Power: By continuously generating profit from new customers, a business gains an unlimited capacity to acquire more [05:16:00].
- Growth without Capital Constraint: The business can grow without being limited by initial capital, as the customers themselves finance the expansion [05:30:00].
- Resilience: Profitability matters in a capitalist society as it enables businesses to “weather the storms” [01:53:00].
- Operational Focus: If customer acquisition and sales are no longer limiting factors, the primary constraints become operational aspects like hiring and scalability [05:33:00].
Success Stories
The speaker has applied this innovative customer acquisition strategy across multiple ventures:
- Brick and Mortar Chain: Grew from zero to six locations in three years, opening each subsequent location at full capacity on day one [00:58:00]. This was replicated in 33 other locations [01:18:00].
- Licensing Business: Grew from zero to 28 million top line annually) in 12-14 months [01:26:00], reaching $4.4 million per month 12 months later [01:37:00].
- Second Business (unspecified): Grew from zero to $1.7 million per month in four months [01:40:00].
- Software Business: Grew from zero to $1.7 million per month in six months [01:46:00].
Starting with just 85 million annually, all without taking on outside capital [06:46:00]. This demonstrates the power of using customers’ money to finance business growth [06:59:00].