I found a flaw with Alex Hormozi's pie equation
He calls it the calls it the "Sweetest equation ever" but it can actually lead you astray BIG time
Master this equation and you're a lock for 8 figures
Fail and you will never be a decamillionaire
🧵
He calls it the calls it the "Sweetest equation ever" but it can actually lead you astray BIG time
Master this equation and you're a lock for 8 figures
Fail and you will never be a decamillionaire
🧵
The pie equation is dead simple.
It will help you determine...
▶️ Your max capacity (# of clients you can have)
▶️ Your client LTV (how much you make per clients lifetime with you)
▶️ Your max monthly revenue
It will help you determine...
▶️ Your max capacity (# of clients you can have)
▶️ Your client LTV (how much you make per clients lifetime with you)
▶️ Your max monthly revenue
The brilliance of this equation is that its dead simple
The thing that makes it so brilliant is what makes it so dangerous too 👇
The thing that makes it so brilliant is what makes it so dangerous too 👇
Before we dive into what is wrong withn the equation, lets review the 4 variables to determine the values above
1) # of new clients/ month
2) Average price per client
3) New business revenue/ month
4) Churn rate
Once you have these, you can dive right in
1) # of new clients/ month
2) Average price per client
3) New business revenue/ month
4) Churn rate
Once you have these, you can dive right in
1) Your max capacity (or the number of clients you can have per month)
Divide the number of new clients per month by the churn percentage.
Divide the number of new clients per month by the churn percentage.
Let's say you sign 4 new clients/ month and the churn is 10%.
In that case, you'll cap at 40 total clients.
That's because after a point, the churn cancels the number of new clients you bring in.
In that case, you'll cap at 40 total clients.
That's because after a point, the churn cancels the number of new clients you bring in.
Why is this important?
It'll help you understand if your business is growing or shrinking.
It's natural to assume that you can scale infinitely as long as you're bringing in clients.
But unless you change one of the 2 variables, you'll max out
It'll help you understand if your business is growing or shrinking.
It's natural to assume that you can scale infinitely as long as you're bringing in clients.
But unless you change one of the 2 variables, you'll max out
2) Your client LTV
Divide the average amount you charge per client per month by the churn percentage.
Divide the average amount you charge per client per month by the churn percentage.
Let's say you charge $2.5k/mo/client and the churn is 10%.
In that case, your client LTV would be $25k.
In that case, your client LTV would be $25k.
Why is this important?
It'll help you understand how much you can spend on each customer, thereby showing you if your margins are high enough.
It'll help you understand how much you can spend on each customer, thereby showing you if your margins are high enough.
3) Your max monthly revenue
Divide the new business revenue per month by the churn percentage
Divide the new business revenue per month by the churn percentage
Let's say you add $5k in new business every month and the churn is 10%.
In that case, your MRR would cap at $50k.
In that case, your MRR would cap at $50k.
Why is this important?
Numbers don't lie.
It'll help you stay grounded and gives you a realistic picture of your business.
Numbers don't lie.
It'll help you stay grounded and gives you a realistic picture of your business.
If you want to change these values, change one of the two variables that determine it.
To grow more, you should...
⬆️ # of new clients/month (or)
⬆️ Price per client (or)
⬆️ New business you bring in every month (which is a result of the above two variables) (or)
⬇️ Churn %
To grow more, you should...
⬆️ # of new clients/month (or)
⬆️ Price per client (or)
⬆️ New business you bring in every month (which is a result of the above two variables) (or)
⬇️ Churn %
Now that we've covered the equation, here is where it can lead you astray...
Most businesses learn about this equation and run it for their whole business or for an entire department
That is WRONG
That will mislead you and give you false data
Most businesses learn about this equation and run it for their whole business or for an entire department
That is WRONG
That will mislead you and give you false data
The correct way to apply this equation is to:
• Run it per team/pod
• Run it per account manager
• Run it per manager
• Run it per team/pod
• Run it per account manager
• Run it per manager
When you do this, you will have an accurate perception of the LTV per sub-group in your business
This will give you the ability to easily manage and develop team members to improve their performance and your LTV
This will give you the ability to easily manage and develop team members to improve their performance and your LTV
When you don't do this, you will see the average of how everyone is performing
This is why this is dangerous:
You may think you're crushing it, when in fact some pods have a VERY high LTV and some have a very LOW LTV
This is why this is dangerous:
You may think you're crushing it, when in fact some pods have a VERY high LTV and some have a very LOW LTV
The low performers will fly under the radar and prevent further growth
They won't receive the proper feedback and they'll hear the feedback that the team is doing 'well'
They may internalize that and believe they are doing well (we've seen this happen)
They won't receive the proper feedback and they'll hear the feedback that the team is doing 'well'
They may internalize that and believe they are doing well (we've seen this happen)
Now that you understand how to use the equation correctly, you must apply it to your business
Every agency owner must use this equation on a regular basis to understand their true business trajectory.
The values will help you scale to new heights
Every agency owner must use this equation on a regular basis to understand their true business trajectory.
The values will help you scale to new heights
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You simply have to fill in the numbers and get your results.
Available only for the next 48 hours!
Must be following to get DM
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