Alex Hormozi: How to Scale Your Business Fast

Last updated: Jun 14, 2023

The video is about how to use a simple math equation called the "pi equation" to answer the hardest questions in business and project the hypothetical max of a business based on its inflow and outflow.

This video by Alex Hormozi was published on Dec 8, 2020.
Video length: 16:29.

In this video, Alex Hormozi shares the "pi equation," a simple math equation with three variables that he uses to answer the hardest questions in business.

The equation is inflow divided by outflow, and it helps him project his hypothetical max and understand where his business is at, whether it's growing or shrinking.

He provides examples of how to use the equation to calculate the max amount of customers a business can have and how to fix any issues that may cause the business to shrink.

  • Alex Hormozi talks about using the Pi Equation to answer the hardest questions in business and project the hypothetical max of a business based on its inflow and outflow.
  • The Pi Equation is a simple division equation that is inflow divided by outflow.
  • The equation gives three different hypothetical maxes that can be used to calculate stuff for a business.
  • The Pi Equation can be used to know if a business is growing or shrinking by understanding the inflow of customers versus the outflow.
  • The second use of the Pi Equation is understanding lifetime value.
  • You can combine the first two uses of the Pi Equation to project business growth.
  • The Golden Ratio is a way to beat the Pi Equation and never end your growth.
  • The Pi Equation is the most used equation in all of business, especially for recurring revenue-based businesses.
  • By using the Pi Equation, a business owner can calculate the hypothetical max of their business based on its inflow and outflow.

How to Scale Your Business Fast - YouTube

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Introduction

  • Alex Hormozi is an entrepreneur, investor, and CEO of Acquisition.com.
  • He talks about how to use a simple math equation called the "pi equation" to answer the hardest questions in business and project the hypothetical max of a business based on its inflow and outflow.
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The Pi Equation

  • The pi equation is a simple division equation that is inflow divided by outflow.
  • It is useful for projecting the hypothetical max of a business based on its current rate of growth and churn.
  • The inflow is a rate thing, and the equation divides rates to get an outcome.
  • The pi equation gives three different hypothetical maxes that can be used to calculate stuff for a business.
  • It allows for quick calculations to understand where a business is at, whether it's growing or shrinking.
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Example of Using the Pi Equation

  • If a business has an inflow of five new customers per month and a churn rate of 10%, the hypothetical max can be projected using the pi equation.
  • The equation is 5 divided by 0.1, which equals 50.
  • This means that the hypothetical max for the business is 50 clients on average.
  • If the business is signing up five people every month and losing 10% of its clients every month, it will reach a point where it has 50 clients on average and will not be able to increase that number unless it increases the rate at which it signs up people or decreases the rate at which people leave.
  • The pi equation gives a clear snapshot of what the business is currently doing and how it will extrapolate into the future.
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How to Scale Your Business Fast - YouTube

Conclusion

  • The pi equation is a powerful tool for projecting the hypothetical max of a business based on its inflow and outflow.
  • It allows for quick calculations to understand where a business is at, whether it's growing or shrinking.
  • It gives a clear snapshot of what the business is currently doing and how it will extrapolate into the future.
  • The pi equation can be used in any kind of business and is a valuable tool for entrepreneurs and investors.
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Using the Pi Equation to Understand Business Growth

  • The Pi Equation is a simple math equation that can help answer the hardest questions in business.
  • The equation involves understanding the inflow and outflow of a business.
  • By using the Pi Equation, you can project the hypothetical max of a business based on its inflow and outflow.
  • The Pi Equation can help you understand where your business is going to stall and how to manipulate variables to reach your business goals.
  • You can use the Pi Equation to know if your business is growing or shrinking by understanding the inflow of customers versus the outflow.
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Understanding Lifetime Value

  • The second use of the Pi Equation is understanding lifetime value.
  • You can use the Pi Equation to extrapolate how much a client is worth to you.
  • If you know the average revenue per client and the percentage of customers leaving every month, you can calculate how much a customer is worth to you.
  • This information can help you know how much you can spend to acquire a customer.
  • Knowing the lifetime value of a customer can give you a number to go and market with.
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Combining Inflow and Outflow to Project Business Growth

  • You can combine the first two uses of the Pi Equation to project business growth.
  • If you know the inflow of new business per month and the percentage of revenue lost per month, you can calculate the hypothetical max of a business.
  • Knowing the hypothetical max can help you understand where your business is going to cap out.
  • Most businesses have enough volatility that they will cap out at around 80-90% of their max.
  • The rate of growth will slow over time due to churn eating out a bigger and bigger percentage.
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The Golden Ratio

  • The Golden Ratio is a way to beat the Pi Equation and never end your growth.
  • The Golden Ratio involves having two rates: the rate of people leaving and the rate of people staying.
  • If you can increase the rate of people staying faster than the rate of people leaving, you can continue to grow indefinitely.
  • The Golden Ratio is about finding the balance between growth and churn.
  • By understanding the Golden Ratio, you can continue to grow your business without capping out.
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Understanding the Pi Equation

  • The Pi Equation is a simple math equation used to answer the hardest questions in business and project the hypothetical max of a business based on its inflow and outflow.
  • The equation involves three variables: price, turn, and inflow.
  • The turn variable represents the percentage of customers who leave every month.
  • The referral percentage is where things get magical, as it represents the percentage of customers who refer a new customer every month.
  • When the referral percentage is greater than the turn percentage, the business experiences net negative churn, which means it grows faster than it turns on its own without paid advertising.
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Using the Pi Equation in Business

  • The Pi Equation is the most used equation in all of business, especially for recurring revenue-based businesses.
  • The equation can be used to know whether a business is growing or shrinking, extrapolate out what the current acquisition versus outflow rate is, and determine the hypothetical lifetime value per client.
  • By combining the lifetime value and inflow variables, a business owner can determine the overall number they will be able to generate per month in their business.
  • Understanding the three variables of price, turn, and inflow can help a business owner understand exactly how to make their business as big as they want.
  • The Pi Equation is a valuable tool for entrepreneurs to understand where their business is and how it's doing.
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Calculating the Hypothetical Max of a Business

  • By using the Pi Equation, a business owner can calculate the hypothetical max of their business based on its inflow and outflow.
  • The equation involves three variables: price, turn, and inflow.
  • By knowing the lifetime value and inflow variables, a business owner can determine the overall number they will be able to generate per month in their business.
  • It takes time for recurring revenue businesses to gain traction, but by understanding the Pi Equation, a business owner can have peace of mind and understanding of where their business is going.
  • Understanding the three variables of price, turn, and inflow can help a business owner determine whether they need to increase the lifetime value by increasing the price or decreasing the churn, or increase their inflow.
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The Importance of the Pi Equation for Entrepreneurs

  • The Pi Equation is a valuable tool for entrepreneurs to understand where their business is and how it's doing.
  • By understanding the three variables of price, turn, and inflow, a business owner can determine exactly how to make their business as big as they want.
  • The Pi Equation can give a business owner peace of mind and understanding of where their business is going, whether it's growing or shrinking, and what they need to do to fix it.
  • By using the Pi Equation, a business owner can calculate the hypothetical max of their business based on its inflow and outflow, and determine the overall number they will be able to generate per month in their business.
  • The Pi Equation is a valuable tool for entrepreneurs to use in order to understand where their business is and how it's doing, and to determine the best course of action to make their business as successful as possible.
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The "Pi Equation" for Scaling Your Business

  • The "pi equation" is a simple math equation that can help answer the hardest questions in business.
  • It involves knowing your inflow, turn, and average price per user, as well as your current revenue.
  • By using this equation, you can project the hypothetical max of your business based on its inflow and outflow.
  • You can also determine whether your business is growing or shrinking, and how fast it's growing.
  • This equation can help you understand where your business is going to level out and how many customers it will level out at.
  • The more you play with this equation, the more powerful you will be as an entrepreneur.

Watch the video on YouTube:
How to Scale Your Business Fast - YouTube

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