If you know these seven principles, you will get rich. Whether you're broke or you make money, but you know you should be making more, this video will fix both. I learned seven principles of success that took me from dead [ __ ] broke at 24 to being a multi-millionaire by 28 in 4 years.
And these principles aren't just some generic advice. We'll leave that for the other people. Each one has a number that's going to make it crystal clear on how you act on each and every one.
Starting with principle number one, know what you're building. The idea is this. Can you get a business that can generate profits without you?
It's very simple. If you vanish, poof, tomorrow, would the whole thing collapse? Would it slowly decay?
My rule is I always build a business so I can sell it. Because whether I do or don't, a company I could sell is a great company to run. So, what metric should you measure so that you know that what you're building is the right thing?
It's called enterprise value or EV. And here's how you calculate it. The first thing is we have to take your yearly profits.
Then you multiply it by the industry multiple. This is the average amount of money that buyers, if you build something that people want to buy, will pay on the profit. The less risk the business has, the higher the profit, the better the multiple.
So it's called durable revenue. So for example, let's use real simple numbers. If you're making 500,000 in profit each year, okay, you have a business that does 1.
5 million and it's 30% profit, that's a half million dollars in profit. You then look at the industry average, let's call it an agency, and it's got a 3x multiple. Then that means your business to a buyer could be worth $1.
5 million. That's your enterprise value. That's why when you're making decisions about growing your business, you want to think, can I invest some of that profit back into the business to increase my enterprise value because you can take that from 15 to 3 million fairly quickly.
So, now we know what we're building and how to build it, but what makes a business more valuable than another. Principle number two, keep what you make. This is what separates a 2x business from a 10x business.
It's not what you make, it's what you keep. Every dollar that you keep after you pay all your expenses makes the business more valuable. Some people have big revenue in tiny little margins and to me that revenue is just vanity, right?
You can hit 10 million in revenue and still wake up broke. Those people show up in my DMs every day because they don't know this. Until you actually know how to keep every dollar that you're making, then you're just flying blind in business and you're not creating wealth.
You're not being efficient. The metric that aligns the most with how much you keep is gross margin. So essentially we have revenue.
How much money do you make per month? Then you got to subtract the cost. Okay, to deliver everything that came with the item or the services.
How much did that make? Okay, that's per month. And if you do that, if you have revenue minus cost to deliver, that equals gross profit, which is different than profit.
Look, profit is typically your revenue minus all your expenses. This is gross profit on just the things sold. So to get our gross margin number, what we got to do is take our gross profit.
Okay? I know I'm asking you to do math. Stay with me.
We're going to have some fun. Divided by our revenue, how much money did I make that month? Okay?
times 100 because it's a math equation and that equals our gross margin. So for example, if my revenue for the month is 50K, okay, and my cost to deliver was only 10K, that means my gross profit, pretty awesome, equals $40,000. Cool.
Now I take the 40k and then I divide it by my revenue which is 50k and then I multiply by that 100 so I get the number 80% gross margin. Your accountant has probably never been able to explain this to you and you're like I don't get it. My rule is gross margin for any business I'm involved in never falls below 70%.
Now if you own a restaurant you're like well that's freaking awesome. I don't get it because average food cost in a restaurant, the margin is about 23%. It's different for every business, but that is where I like to stay because the higher the gross margin when I'm building a business, the more profit I usually have at the end of the month, which means the business is more valuable to increase my enterprise value.
So, knowing your margins is step one, but understanding all the principles to apply it to your business, that's a completely different thing. So, if you want my internal scale your business workbook with the exact steps that I walk all my coaching clients through for free, just DM me the word YouTube workbook on Instagram and I'll send it right over. So, having large margins is awesome sauce, but the large margins won't feel very good if you can't maintain them.
Which brings us to the next principle. Principle number three, you got to plug the holes in the bucket before you fill it. If you're losing clients faster than you can bring them in, there's a point where you will just be banging your head against the ceiling.
See, most entrepreneurs that see clients leaving and just go, "Oh, I have a marketing problem. I got to go run more ads. I got to get more people to show up.
" Wrong move. If you just pour water into a bucket with massive holes in it, you can't pour enough water fast enough to fill that bucket up. And that is what people often do.
How about you keep the customers you have or sell more to them versus trying to find some new ones? Do you know it's seven to eight times cheaper to sell something to an existing client than it is to go find a new one? So where should you put your effort and at what level?
The metric that helps you plug the holes in that bucket is called turn rate. So here's how we calculate it. Super simple.
So first thing is we need the clients that we've lost that month. Okay, clients lost. How many this month did you lose?
Okay, in the month. Then we divide that number by the total amount of clients we had at the beginning of the month, not the end of the month, beginning of the month. And to make that a percentage, like always, we multiply it by 100.
And that equals your churn rate. So, for example, let's say you had three people leave. At the beginning of the month, you started with 100.
That would mean times 100, you would have a 3% turn rate. Most businesses should be at 3% monthly churn. Okay?
Now, obviously, every business is harder to calculate this. If you have a restaurant, you have an agency, you have a retail store, it's a little different, but you can still look at the transaction volume. You can look at the average purchase rate.
You can figure out through the data what yours is. And honestly, just look at like how often are people buying from you again and again. If you never lose a customer, think about it.
It's graph, okay? And on the top side you have how much you're growing. But on the bottom side you have how many customers you've lost.
If you grabbed all those people underneath that line and you put it on top of the customers you currently have. That's how much bigger your business would be if you never lost a customer. For most businesses that could be two or three times bigger.
So now we know how many clients are leaving. The next thing we need to know is what are those clients actually worth? Think about this.
The client you already have is worth way more than the one you're chasing. Most founders are out there spending all their time and energy trying to chase new customers and not realize that the ones that they have now could be worth a lot of money if they knew what that was worth. I'm a big fan of always growing what you've got before you go chase what you don't.
And the metric that tracks what each one of your clients are worth is lifetime value or LTV. Here's how we calculate it. It's a super cool simple formula that nobody teaches.
So what you do is you take the average revenue per client per month. Okay? How much is that number?
And then you divide it by the monthly churn percent. Okay? And that will give you your lifetime value.
Okay? Aren't you curious what your customer is worth? I am.
I'm curious for you. Let's say, for example, a customer pays you a hundred bucks a month. Okay?
Divided by, let's say you have a 2% monthly churn, 0. 02. Then that means your customer is worth $5,000.
You see why this gets exciting? Because instead of losing customers and you keep them, they get worth more and more and more. And when you do that, guess what goes up?
Enterprise value. I know it all stacks together. Okay.
The important note is that churn is the drag on this number. Okay. Obviously, what you get paid every month is important, but most people don't realize that if they can cut their churn in half, they double the value of their customer with no extra effort.
Same price, twice the value. So, yes, you can get more value from your existing clients, but you still have to grow the business. And every time you do that, it does cost you something.
Principle number five, know your spend. Here's the thing. It doesn't matter if you're a professional speaker, a coach, a restaurant, a retail store, sell stuff online.
Before you ever get paid, a client costs you money. Okay, think about it from an ads point of view. Maybe you got to pay a sales commission.
Maybe you had to do a promotion, a marketing thing. Maybe you had to pay to go on a radio station. There's cost that goes into making the market aware of you before somebody ever gives you money.
And most founders and business owners never tally up what a single yes from a client actually costs. The richest operators I know know this number cold. Broke ones, they guess.
And if you can't price the yes, you can't price growth. The metric that tracks how much a client costs is called the customer acquisition cost or your CAC. So first you have to take everything that you spend to get a customer and know what that means.
So that is your cost to get a client. I'm talking the ads, the sales commission, the software that you had to pay for those teams. And that's how much you spent that month.
Then you divide how many new clients you added that month. Okay? Not leads, not trials, actually paying clients that gave you money.
And that will give you your CAC, your cost to acquire a customer. Let's say, for example, you spent $10,000 in expenses that month to acquire customers, and you got you would divide the number by 20, 20 new customers. That means every one of them cost you $500.
So your CAC to acquire customer is $500. Isn't this cool? Now you can evaluate opportunities to grow the business.
So somebody comes to you and they say, "Hey, I can get you new customers for $100. " You say, "That's cool because right now I'm paying 500. If you can get it for 100, that's a steal.
Let's run it. Let's try it out. " Right?
But if somebody came to you and said, "Hey, I can get you a customer for $1,000. " You might go, "How about no? " So here's a pro tip.
There's another metric called the CAC payback period. Meaning, how much do you spend and how quick can you get it back? So, let's say a customer pays me a $100 a month and my cost acquire a customer is $100 a month.
That means that I can grow unlimited with a 30-day credit card to pay it back. See what I'm saying? But if I have to spend $500 to get a customer and I only make that money back after 6 months, the faster I grow, what you hear is the sound of cash flying out of your business cuz you got to finance that growth.
Even if the customer is worth $5,000 to you, you want to make sure that the speed that you can get back the cash that you spend to acquire the customer is as fast as possible. So that's why a lot of companies charge setup fees. They try to get you to increase your average order value.
They try to get you to pre-by something before you use it because that cash finances the acquisition cost because if not, you have to finance other people's value that you're delivering with your business and that's just not a fun place to be. Okay, so now you know how much a customer is worth to you. That's awesome.
But what if you're trying to grow and spend money to acquire customers, but they can't find you? Which brings us to principle number six. Tighten your funnels.
Every week, new people know about you. They find content. They talk to somebody.
They're referred to you and they walk into your business, your website, and they want to buy from you. They raise their hand. And yet, somehow somewhere along the process that they wanted to give you money, they weren't able to do that.
It happens in my businesses. There's broken links. People text me them.
It's just a normal thing in business. The problem is is that most founders don't even see it happening. So the metric that tracks how many clients that come through your funnel and drop is your conversion rate.
So here's how we calculate it. First, you take your funnel and you break it into all the separate steps that are involved. Think leads, qualified, booked, showed, and closed.
That's usually the big ones, right? Each stage is a new yes. If the person doesn't go from stage one to stage two, it's a no.
the end of the day, the conversion rate is the total amount of percent of people that started and finished by giving you money. So at each stage that says yes, those are called survivors. So we want to count at each stage how many people survived that question.
So if you have a 100 leads and then 40 people qualify, and then 10 people book, eight people show, 5% close, that means your overall conversion rate is 5%. So now you got your funnels figured out, and you look and you go, hm, where should I focus my time? You need to figure out which step is broken and then go attack that step.
So this allows you to know where you should be focusing your time so that you can improve the business the fastest. And then next we have principle number seven. Know how long you can go.
Every month that goes by where you don't make any money then it has to come out of pocket. It's why when people start companies they usually empty out their savings account. But at a certain point you're going to run out of energy and time to grow this business if you're not making any profit.
You need to know how many tries, how many months do you have ahead of you so that you can calibrate each decision. Experienced founders, the best, know exactly how many months they have left. Your P&L, your profit and loss statement, it's an autopsy after the fact, not a diagnosis.
Your business could be done in 30 days and you haven't done anything about it cuz you didn't even know. The metric that tracks how long your business has until it has to shut its door is called your burn rate and runway. Okay, so the first thing we need to do is figure out what is our burn rate.
So essentially you take the cash out which is a negative number because it's gone. Then you add the cash that's coming in. This is your sales.
Any kind of revenue that's really important. Okay? And that's a positive number.
And then whatever is left over that may be a negative number. And essentially that is your burn. And for example, if you're spending 40 grand, okay, and the money coming in is only 20K, okay, then that means that your burn per month is negative $20,000.
So that means every month that goes by, you lose $20,000. So now we need to know how much cash is in the bank. Cash in bank, right?
Minus your burn. Okay, equals how many months your runway. Okay, essentially how many months can you continue this way?
Okay, in the business world, I call this default debt. How many months before your default debt? Now, if you're making more than you're spending, game on.
But what happens is oftent times we make investments, we make bets, and we can make that ratio get flipped again, even if at one point we were making more than we're spending. So, for example, if I start the business and I somehow get $100,000 together and I'm burning every month 20K, then that means I have five months of runway. 5 months until I'm at zero.
Five months until I'm default debt. At minimum, you obviously want to make that number as far as possible into the future. If you're two to three months away, take massive crazy high volume action because one bad month can actually make this number a lot closer than you think.
And one way I do this so that I'm never surprised is I do a daily cash report. That means every day I get how much cash came in, how much cash went out, and I'm paying attention to it so I can create a rhythm or a pulse on my cash. So those seven principles, if you follow them and you focus on them, you will increase the value of your business more than anything else.
Now you know what levers to pull to improve it. What I want to ask you below in the comments is let me know out of those seven, which one did you feel you need to go calculate and go come back and calculate it this week? I don't need to know the answer, but I need to know that you did the work.
The truth is the winners aren't the smartest people in the world that are like so genius level IQ. They're the ones that know their numbers. They know what to measure and they know how to fix them.
And remember, if you want my whole workbook on how to scale your business that includes this and a bunch of other stuff, just go find me on Instagram and DM me the word YouTube workbook and I'll send it right over.
