From: alexhormozi
The core concept behind significant business growth, even with limited initial capital, is an equation called Client Financed Acquisition (CFA) [00:00:52]. This approach allowed for the growth of a business from an initial investment of 120 million in sales, with a current portfolio company doing $85 million per year [00:00:01]. The key is to grow portfolio companies with 100% equity, avoiding outside capital or investors [00:00:16].
Instead of the common belief that a business takes two or three years to break even, this strategy aims to make money consistently from the outset, reducing stress and increasing enjoyment [00:00:31].
Client Financed Acquisition (CFA) Explained
In plain terms, Client Financed Acquisition means getting your customers to pay for all of your marketing and acquisition costs [00:02:04]. This allows a business to leverage “the universe’s money” rather than its own, enabling significant cash flow for operations [00:02:14].
The principle is that you can generate more money from a customer entering your world than it costs to acquire and fulfill their initial service or product [00:02:20]. If this can be achieved within the first 30 days, while still covering the cost of fulfillment and having money left over, you achieve what is termed a “negative acquisition cost” [00:02:29]. This means you make money simply by acquiring customers [00:02:37].
Profit is crucial in a capitalist society for weathering economic storms [00:01:52].
The CFA Equation
The equation is as follows:
30-day cash > 2 * (Cost of Acquiring Customer + Cost of Fulfilling Customer) [00:02:50]
Let’s break down the components:
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30-day Cash: This refers to the net free cash flow collected by the business within the first 30 days of a customer engaging with the business [00:03:57]. This initial cash flow is crucial, as future upsells, continuity payments, or lifetime value are not considered for this specific calculation [00:04:09]. The 30-day timeframe is significant because it aligns with interest-free financing periods typically offered by credit cards, allowing a business to “take unlimited money” by paying off expenses within this period [00:04:19]. This was literally how a second business was started [00:04:35].
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Cost of Acquiring Customer: This includes all expenses related to bringing in a new customer, such as marketing teams, sales commissions, advertising, and lead acquisition methods [00:03:07].
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Cost of Fulfilling Customer: This represents the cost associated with delivering the product or service to the acquired customer [00:03:25].
Example Calculation:
If:
- Cost of Acquiring Customer = $100 [00:03:08]
- Cost of Fulfilling Customer = $100 [00:03:29]
Then:
- Total Cost (Acquisition + Fulfillment) = $200 [00:03:31]
- Required 30-day Cash (2 * Total Cost) = $400 [00:03:41]
If you make 200, you have 200 is precisely enough to acquire and fulfill another customer, creating a self-financing loop for new customer acquisition [00:05:05]. This allows for unlimited power to acquire new customers and generates unlimited money [00:05:16].
Impact and Application
By adopting this approach to customer acquisition, companies can grow without being constrained by capital [00:05:30]. While other constraints like operations or hiring may exist, the ability to acquire new customers and make sales will not be a limiting factor [00:05:33]. This process involves designing systems in every business where the money made in the first 30 days significantly exceeds two times the cost of acquisition and fulfillment [00:05:47].
This model has been successfully applied to various businesses:
- A brick-and-mortar chain grew from zero to six locations in three years, with each location opening at full capacity on day one [00:00:56].
- A licensing business went from zero to 28 million top line per year) within 12 to 14 months [00:02:22].
- A second business reached $1.7 million a month in four months [00:01:40].
- A software business reached $1.7 million in six months [00:01:46].
Ideally, the 30-day cash should be significantly more than twice the costs (e.g., 10 times), which allows for even greater cash flow and investment in other areas [00:06:04]. This strategy allows a business to multiply and grow using customer money to finance all growth, rather than personal capital [00:06:56]. It addresses the limiting belief that “it takes money to make money” [00:06:29].