Sales velocity and daily revenue goals

From: alexhormozi

Achieving a substantial enterprise value, such as $100million,isanattainablegoalformanybusinesses,oftenwithoutneedingtoinventaradicallynewproduct<aclass="yt-timestamp"data-t="00:00:21">[00:00:21]</a>.Conversely,aimingfor$100 billion typically necessitates creating something on the scale of the next Google [00:00:15]. For businesses targeting a $100 million enterprise value, the strategy revolves around calculating specific daily revenue goals based on desired profit and market multiples, then connecting these targets to sales velocity and customer lifetime value (LTV) [00:01:05].

Deriving Business Goals

The process of determining sales metrics and daily revenue targets for a business model involves a series of calculations:

1. Desired Enterprise Value: Determine the target enterprise value for the business [00:00:42]. For a $100 million enterprise, this value is fixed.
2. Required Profit: Estimate the profit needed to achieve the target enterprise value, considering industry multiples [00:00:44]. A cautious approach might aim for $20millioninprofitfora$100 million valuation if multiples are not high [00:00:49].
3. Total Revenue: Calculate the total annual revenue required based on the target profit and industry net margins [00:00:52].
4. Breakdown to Daily Revenue: Divide the total annual revenue into monthly, weekly, and daily targets to understand the necessary sales volume [00:00:54].
5. Connect to Sales Velocity and LTV: Use the daily revenue target to back-calculate the required sales velocity in terms of customer acquisitions and their LTV [00:01:05].

This methodology provides a structured approach for deriving almost any business model [00:01:11].

Example: House Cleaning Business

Consider a hypothetical house cleaning business aiming for a $100 million enterprise value:

• Customer Retention: Industry statistics indicate an average customer stays for two years [00:00:31].
• Average Payment: Customers pay $400 per month [00:00:35].
• Net Margins: The industry average net margin is 20% [00:00:37].
• Target Profit: To achieve a $100millionvaluation,aconservativeestimateforprofitmightbe$20 million [00:00:49].
• Required Revenue: With a 20% net margin, $20millioninprofitnecessitates$100 million in annual revenue ($20M / 0.20) [00:00:52].
• Revenue Breakdown:
  • Monthly Revenue: Approximately $8.3 million per month [00:00:54].
  • Weekly Revenue: Roughly $2 million per week [00:00:57].
  • Daily Revenue: Approximately $300,000 per day [00:01:01].

By identifying that the business needs to generate $300,000 in revenue daily, one can then determine the sales velocity needed in terms of new customer acquisitions, factoring in the customer’s average lifetime value [00:01:05]. This systematic approach clarifies how much needs to be sold daily, the value of each sale, the total revenue generated, the margins, and the multiple applied to those margins to arrive at the overall business valuation [00:01:13].