From: alexhormozi
Achieving specific financial targets, such as an enterprise value of 100 billion would necessitate creating something on the scale of the next Google [00:00:15].
Setting Financial Targets
To build a business worth 12-15 million in profit, or 100 million valuation [00:00:46].
Deriving Revenue from Profit Goals
Once the target profit is established, the necessary revenue can be calculated using average net margins. For instance, if the target profit is 100 million in annual revenue [00:00:52].
This annual revenue can then be broken down into smaller, actionable targets:
- Monthly Revenue: 8.3 million per month [00:00:54].
- Weekly Revenue: This is roughly $2 million per week [00:00:57].
- Daily Revenue: Dividing the weekly goal by seven days yields a daily target of $300,000 [00:01:01].
Applying to a Business Model: House Cleaning Example
Consider a house cleaning business as an example to illustrate these calculations:
- Customer Retention: The average customer stays for 2 years [00:00:31].
- Monthly Payment: Customers typically pay $400 per month [00:00:35].
- Net Margins: The industry average for net margins is 20% [00:00:37].
By knowing the daily revenue target (e.g., $300,000), one can then “back in sales velocity” based on the customer’s Lifetime Value (LTV) to meet that daily goal [00:01:05].
The Business Model Derivation Process
The general process for deriving a business model based on financial targets involves these steps:
- Determine the daily sales required [00:01:15].
- Calculate the worth of each sale (e.g., customer LTV) [00:01:15].
- Project the total revenue this will generate [00:01:17].
- Assess the margin on that revenue [00:01:19].
- Apply the appropriate multiple to that margin to determine the business’s potential valuation [00:01:21].