Alex Hormozi: Introduction To Marketing | Business Marketing 101

Last updated: Jun 14, 2023

The video is about the three important numbers to look at in any business when it comes to marketing: cost of acquisition (CAC), lifetime value (LTV), and 30-day cash.

This video by Alex Hormozi was published on Feb 23, 2021.
Video length: 10:07.

In this video, Alex Hormozi introduces the three key numbers he looks at when investing in or partnering with a business:

cost of acquisition (CAC), lifetime value (LTV), and 30-day cash. He explains how to calculate and use these numbers to make informed decisions about marketing and growth strategies, and emphasizes the importance of understanding gross profit margins and achieving a 3:1 LTV to CAC ratio.

Hormozi also discusses the benefits of using other people's money to acquire customers and generate profit.

  • Marketing can be overwhelming with different numbers and KPIs.
  • Three important numbers to look at are CAC, LTV, and 30-day cash.
  • CAC is the cost of acquiring a customer and should include all associated costs.
  • LTV is the total gross profit you will make over the lifespan of a customer.
  • 30-Day Cash is the amount of cash you can generate in the first 30 days of acquiring a customer.
  • Understanding the relationship between CAC, LTV, and 30-Day Cash is crucial for any business.
  • Breaking even on 30-day cash to CAC and having an LTV to CAC ratio of at least three times is necessary for a viable business.

Introduction To Marketing | Business Marketing 101 - YouTube

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Introduction to Marketing

  • Marketing can be overwhelming with all the different numbers and KPIs.
  • Distilling down the important numbers can help make sense of it all.
  • The three important numbers to look at are CAC, LTV, and 30-day cash.
  • Understanding the relationship between these numbers is crucial for any business.
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Cost of Acquisition (CAC)

  • CAC is the cost of acquiring a customer and should include all associated costs.
  • This number is important for understanding the cost of acquiring new customers.
  • It includes sales commissions, ad spend, marketing team costs, and software costs.
  • Knowing your CAC can help you make informed decisions about marketing spend.
  • It's important to keep this number as low as possible to maximize profits.
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Lifetime Value (LTV)

  • LTV is the total gross profit you will make over the lifespan of a customer.
  • It's important to understand the gross margin of your business to calculate LTV.
  • Using gross profit instead of total revenue is crucial for making informed decisions.
  • Knowing your LTV can help you make informed decisions about marketing spend.
  • It's important to keep your LTV to CAC ratio at least 3:1 for maximum profitability.
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Introduction To Marketing | Business Marketing 101 - YouTube

30-Day Cash

  • 30-Day Cash is the amount of cash you can generate in the first 30 days of acquiring a customer.
  • It's important to understand this number to use other people's money to acquire customers.
  • Using credit lines or credit cards can help you acquire customers without using your own money.
  • Knowing your 30-Day Cash can help you make informed decisions about marketing spend.
  • Having a 30-Day Cash value at least equal to your CAC can help you maximize profitability.
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Conclusion

  • Understanding the relationship between CAC, LTV, and 30-Day Cash is crucial for any business.
  • Keeping these numbers in mind can help you make informed decisions about marketing spend.
  • Maximizing profitability requires keeping CAC low, LTV high, and 30-Day Cash at least equal to CAC.
  • Using other people's money to acquire customers can help you grow your business without using your own money.
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Cost of Acquisition and Lifetime Value

  • The three important numbers in any business when it comes to marketing are cost of acquisition (CAC), lifetime value (LTV), and 30-day cash.
  • Lifetime value is the amount a customer will spend with the business over their lifetime.
  • The gross profit, not the total revenue, is used to calculate LTV.
  • The CAC must be less than the LTV divided by three for the business to make a profit.
  • The LTV to CAC ratio is the first relationship to look at when analyzing marketing metrics.
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30-Day Cash and CAC Ratio

  • The 30-day cash to CAC ratio is the second relationship to look at when analyzing marketing metrics.
  • A one-to-one relationship between 30-day cash and CAC means the business is breaking even on acquiring customers.
  • The 30-day cash must be greater than the CAC for the business to use other people's money to finance acquisition.
  • If the 30-day cash is greater than the CAC, the business can break even on acquisition in the first 30 days and still collect the remaining profit.
  • The LTV to CAC ratio and the 30-day cash to CAC ratio are the two biggest relationships to look at when analyzing marketing metrics.
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Visual Example

  • A customer comes into the business with a CAC of $200.
  • By day 30, the business has made $200 on the customer, covering the cost of acquisition.
  • The business continues to sell to the customer, making a profit on the back end.
  • The power of this concept is that the business can break even on acquisition and still make a profit on the back end.
  • The three numbers to always know when marketing are CAC, LTV, and 30-day cash.
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Importance of Metrics

  • Breaking even on 30-day cash to CAC and having an LTV to CAC ratio of at least three times is necessary for a viable business.
  • If metrics are below these levels, the business needs to fix them by implementing upsells, special offers, or affiliate relations.
  • A higher 30-day cash means the business can spend more to acquire customers and still make a profit.
  • The amount added to 30-day cash also adds to the total lifetime value of the customer.
  • Using metrics to make decisions empirically and quantitatively is important for the success of a business.

Watch the video on YouTube:
Introduction To Marketing | Business Marketing 101 - YouTube

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