Equation for unlimited customer acquisition

From: alexhormozi

The “Equation for Unlimited Customer Acquisition” is a core concept that enabled a business to scale from an initial investment of $1,036toover$120 million in sales, with a portfolio company currently doing $85 million per year [00:00:01]. This strategy focuses on growth without relying on external capital or investors [00:00:16].

Challenging Traditional Business Beliefs

Many entrepreneurs believe it takes two to three years for a business to become break-even or profitable [00:00:31]. However, this approach, often relying on seed capital or investors, can be stressful [00:00:49]. The alternative is to proactively change the variables of the business game to ensure constant profitability [00:00:42].

Client Financed Acquisition (CFA)

The core principle behind this rapid growth is known as Client Financed Acquisition (CFA) [00:00:53]. In simple terms, CFA means getting your customers to pay for all your marketing and acquisition costs [00:02:05]. By plugging into “the universe’s money” rather than personal funds, a business can cash flow nearly anything [00:02:14].

This strategy leads to a “negative acquisition cost,” where the business makes money simply by acquiring customers [00:02:35]. This is achieved if the revenue generated from a customer within the first 30 days, after accounting for fulfillment costs, is greater than the cost of acquiring that customer [00:02:29].

The CFA Equation

The equation for Client Financed Acquisition is:

30-Day Cash > 2 * (Cost of Acquiring Customer + Cost of Fulfilling Customer) [00:02:57]

Let’s break down each component:

1. 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 ecosystem [00:03:57]. While long-term value, upsells, and continuity are important, the focus for a small business without upfront cash is on immediate, short-term cash flow [00:04:13]. The 30-day timeframe is crucial because it aligns with interest-free financing periods typically offered by credit cards, allowing businesses to leverage external funds without incurring debt [00:04:19].

2. Cost of Acquiring Customer: This includes all expenses related to bringing in a new customer, such as marketing team salaries, sales commissions, and advertising costs [00:03:07].

3. Cost of Fulfilling Customer: This is the cost associated with delivering the product or service to the customer [00:03:25].

Example Walkthrough

Let’s use an example to illustrate the equation:

• Cost of Acquiring Customer (CAC): $100 [00:03:08]
• Cost of Fulfilling Customer (CFC): $100 [00:03:29]

1. Calculate the sum of CAC and CFC: $100+$100 = $200 [00:03:31]
2. Multiply this sum by two: 2 * $200=$400 [00:03:40]

According to the equation, the 30-Day Cash generated from the customer must be greater than $400 [00:03:48].

If you collect $400in30-daycash,andyourcombinedacquisitionandfulfillmentcostswere$200, you are left with $200profit<aclass="yt-timestamp"data-t="00:04:56">[00:04:56]</a>.This$200 can then be immediately reinvested to acquire and fulfill another customer [00:05:04]. This cycle creates an endless loop of customer acquisition [00:05:16].

Benefits and Implications

By consistently applying this equation, businesses can:

• Achieve unlimited power to acquire new customers [00:05:16].
• Generate “unlimited money” for growth [00:05:21].
• Grow companies without being constrained by capital [00:05:28].
• Shift limitations from sales and customer acquisition to operational or hiring constraints [00:05:33].

While the minimum requirement is to make at least twice the cost of acquisition and fulfillment, ideally, a business would aim for a much higher multiple (e.g., 10 times) to generate even more surplus cash for further investments [00:06:04].

Real-World Applications

The speaker has applied this Client Financed Acquisition strategy across multiple ventures:

• Brick and Mortar Chain: Grew from zero to six locations in three years, with each location after the first opening at full capacity on day one [00:00:58]. This model was then replicated for 33 additional locations [00:01:18].
• Licensing Business: Scaled from zero to $2.5millionpermonthin12-14months(totaling$28 million annually), and then to $4.4 million per month [00:01:22].
• Second Business: Grew from zero to $1.7 million per month in four months [00:01:40].
• Software Business: Achieved $1.7 million per month within six months [00:01:46].

These successes underscore the power of using customer money to finance growth, overcoming the common misconception that “it takes money to make money” [00:06:29]. This principle is a fundamental driver for business growth in any industry [00:05:59].