From: alexhormozi
The Client Financed Acquisition (CFA) equation is presented as a single concept that enabled one entrepreneur to grow 120 million in sales, with a current portfolio company achieving $85 million per year [00:00:01]. This model has been central to growing portfolio companies with 100% equity, without relying on outside capital or investors [00:00:12].
The Philosophy of Capital-Free Growth
For those without significant starting capital, the key is to think differently and play the business game uniquely [00:00:21]. Instead of the common belief that a business takes two or three years to break even, the speaker advocates for a model designed to generate profit continually, making the process more enjoyable and less stressful [00:00:31].
What is Client Financed Acquisition (CFA)?
Client Financed Acquisition means getting your customers to pay for all of your marketing and acquisition costs [00:02:03]. The core idea is to “plug into the universe’s money” rather than your own, allowing you to cash flow anything needed for growth [00:02:14]. If you can make more money from a customer entering your world than it costs to acquire them, you achieve a “negative acquisition cost” [00:02:20]. This means your business makes money simply by gaining customers [00:02:36].
The CFA Equation
The fundamental equation for Client Financed Acquisition is:
**30-day cash > 2 * (Cost of Acquiring Customer + Cost of Fulfilling Customer)** [02:52]
Let’s break down the components:
- Cost of Acquisition (CoA): This includes all expenses related to bringing a new customer in, such as marketing teams, sales commissions, and advertising [00:03:07].
- Example: If CoA is $100 [00:03:08].
- Cost of Fulfillment (CoF): This is the expense incurred to deliver the product or service to the customer [00:03:25].
- Example: If CoF is $100 [00:03:30].
- 30-day Cash: This refers to the net free cash flow collected by the business within the first 30 days of a customer’s engagement [00:03:57]. This specific timeframe is chosen because it aligns with typical interest-free financing periods on credit cards, allowing businesses to leverage external money without incurring debt costs [00:04:19].
How the Equation Drives Growth
Using the example: If CoA is 100, the total cost to acquire and fulfill is 400 [00:03:48].
If you make 200, you have 200 is precisely the amount needed to acquire and fulfill another customer, who will then generate another $400 [00:05:05]. This creates a continuous cycle, granting the business “unlimited power to acquire new customers” and, consequently, “unlimited money” [00:05:16].
“If you can make more money getting someone to enter your world than it costs you to get them there… and you can pay the cost of fulfillment and still have money left over then you have what is called a negative acquisition cost” [02:20]
This method of scaling business operations allows companies to grow without capital constraints [00:05:30]. While other challenges like operational or hiring constraints might arise, the ability to generate new customers and sales will not be a limiting factor [00:05:34].
Real-World Application and Results
The speaker demonstrates the power of CFA with several examples of business growth and scaling strategies:
- Grew a brick-and-mortar chain from 0 to 6 locations in 3 years, opening subsequent locations at full capacity on day one [00:00:56].
- Scaled a licensing business from 2.5 million per month ($28 million annually) within 12-14 months [00:01:22].
- Launched a second business that reached $1.7 million per month in just 4 months [00:01:40].
- Started a software business that achieved $1.7 million per month within 6 months [00:01:46].
This approach allows a business to leverage and scale by constantly reinvesting the profits from initial customer acquisition back into new customer acquisition, all financed by the customers themselves [00:07:00]. This effectively means using customers’ money to finance all business growth [00:07:00].
“This is the minimum requirement for CFA… if you can make this you know 10 times then it’s even better” [06:17]