reverse engineering growth 101

Summary

most growth plans I see are: sell more. that is not a plan. that is a sentence. reverse engineering growth means starting with the revenue number and walking it backwards until you hit something you can actually do this week.

the simple example:

1. target: 10 thousand dollars in revenue this month from a 100 dollar product. that’s 100 sales.

2. conversion rate: if you close 1 in 10 leads, you need 1000 leads. if you close 1 in 4, you need 400.

3. lead cost: if leads cost 10 dollars each via ads, your acquisition spend is 4000 to 10 thousand dollars before you book the revenue.

now you have a real number. either you can fund the leads, you cannot, or your conversion rate has to improve before any of this works. that’s the conversation worth having.

past the basic math you hit the second wall, which is people. the only way to scale past your own throughput is to develop the leadership, management, and hiring skills to build a team that can take the playbook off your plate. outsourcing is the on-ramp. hiring is the highway. master that and the spreadsheet stops being the bottleneck.

Transcript

introduction to scaling your business and the mathematics behind it

The most impactful business is the business that genuinely improves another human, a better human business. And to grow a business like this, you have to continually improve yourself. This podcast is a documentation of that thesis, scaling businesses and also personal growth. My goal is for you to shortcut this journey.

So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. So how do we scale your business? How do we grow it mathematically, reverse engineer what we want and then decide, Hey, here’s the output we’ve decided on revenue per month, new customers. Now what are the inputs I need?

What are the inputs I need to get there? It’s all very mathematical and we’re going to dive into that a little bit more today. This is the better human business podcast. I’m Jerred Moon and entrepreneurs are decent at math, but a lot of times I see entrepreneurs doing dumb math and dumb math would be, Hey, I want to sell pencils.

detailed breakdown of reverse engineering your business growth

I sell pencils for a dollar and I want to make a million dollars. So I’m going to sell a million pencils. That’s kind of like the stupid level math of, Oh, if I want to have a million dollar per year business, I just need to sell this many things when that’s never how it works. It’s never just sell more things.

Business gets a lot more complicated. You might need different revenue streams. There’s going to be a certain level of investment to scale to that level. In which case the profitability might not be where you want. There’s a lot of factors that go into scaling when you’re just doing math. And I want to talk a little bit about that today.

So I’m going to dive into a quick example. This would be like reverse engineering scale 101. And then I’m going to kind of open the door to 201 and 301 and the problems it creates as we get more advanced. But let’s just go into the rabbit hole. So say you want to add $10,000 to your business next month, just for an example.

discussion on resource allocation and optimizing lead generation

And for simplicity, let’s say your average customer is worth $1,000. They come in, they pay you a thousand bucks. So very easy to say you need 10 new customers. That’s that stupid math, right? It doesn’t answer any problems for us, doesn’t solve any problems for us, answer any questions. Let’s say when you have sales conversations, you typically get 50% of those people to say yes.

So 50% of the time someone comes in or you talk to them on the phone, whatever, 50% of them will say yes to your product or service. That means you need 20 new sales conversations, right? Still pretty easy math from here. Well, to get 20 new sales conversations, you’re going to need leads. Now don’t overcomplicate this.

A lead is someone you can contact. That’s it. That’s all a lead is. Someone who willingly gave you their contact information. Let’s say anybody who gave you their contact information of those people, because they might not be interested right now, it might not be a good time right now. So your conversion rate should drop a little bit from lead to sales conversation.

So let’s say you get 20% of your new leads to have a sales conversation with you. That means you’re going to need a hundred new leads. Hopefully you’re following along. So it should be pretty simple. Now we need a hundred new leads as what we’ve decided or theorized. I need a hundred new leads to get $10,000 in my business this month.

So let’s get into getting those leads. So let’s say I run a pretty good business. So I’m good for about 30 leads just coming in, whether that’s word of mouth from my current customers, maybe that’s referral from a partner, or maybe it’s just kind of any organic, you know, social media website, those kinds of things.

transitioning from doing to leading: managing growth through people

I got 30 leads. I’m just kind of guaranteed that or, you know, cause I run a good business. I get about 30 leads per month. Let’s say next you’re going to say, how much time can I spend to acquire leads? So we go from, we got 30. Okay. Now what can I do with my time? Well, for me, like let’s, let’s say I wanted to be a guest on a podcast or two that might generate some more business for me.

Or if you’re brick and mortar, you could run a workshop or two, do a local event or two things inside your community. And all said done, say whatever those activities are that take your time, say it takes about four hours of your time and you get 20 new leads. Now most people don’t calculate what their time is worth, but let’s, let’s say that those, those leads, I got 20 leads in four hours.

That means it’s about 12 minutes per lead. And that’s something that you can track. Most people don’t track that, but it’s just something that you want to start paying attention to. And I can come back to that. But between the 30 organic, right, the people would just walk in the door and then I spend four hours of my time.

I get 20. I now have 50 leads. I need 50 more to get to that hundred. That’s ultimately going to get me to my goal. And let’s just say I’ll use, or you use digital advertising for the rest. And we’ll say that each lead is going to cost you 50 bucks. You get 50 leads, that’s $2,500 you had to spend in, in advertising to get 50 more leads.

Now going back to your time, if we’re actually putting a dollar amount on that, like what if your time is worth $200 an hour? So you’ve deemed your time to be worth, you spent four hours, you generated 20 leads. That’s $800 is what that costs you or $40 per lead. So hopefully your head’s not spinning with the math.

I know sometimes math and audio can be, can be a little bit difficult, but now we’ve got a hundred leads. Let’s just say everything worked out. You got a hundred leads. It costs $2,500 in digital advertising, $800 in your time. That’s total cost of $3,300. And it should, if everything worked out correctly, generate you $10,000.

advanced scaling strategies and the importance of leadership in scaling

That’s a 203% ROI, pretty crazy the ROI you can get in business. Now the levers you can pull here are anytime I mentioned a percentage, right? If we say 50% of my sales conversations say yes, but that goes down to 30, you need a lot more leads. If that goes up to 70, you need a lot less leads. Same with leads to sales conversations.

If I’m getting 20% of my new leads to have a sales conversation, then I need a certain number of leads. If that goes down to 10%, I need a lot more leads. If that goes up to 80%, I need a lot fewer leads. So these are the levers that you can actually pull in scaling. The other lever you can pull is time, right?

You can throw in more time. How much time can you put into the business, right? That’s the lever you can pull. Oh, okay. I spent four hours. I got 20 leads. What if I do eight hours? Is that really going to get me 40 leads? So these are the levers you can start pulling to get the amount of leads that you need to hit your revenue goal.

closing thoughts and preview of upcoming discussions on deep-dive scaling techniques

Again, all this is 101 math. I’m going to skip 201 math because 201 math would be getting super into the weeds of every acquisition source. We’re talking about every single ad you run, every single conversation you have, every single referral you get, every single just anything that you do, marketing email that you send.

Like we can put dollar amounts on these. We can then further calculate how many inputs to get to the desired outputs and you have to get to that level of detail once you’re really getting to scale and like you’re trying to just run ultimate efficiency, the math gets even more complicated and very detailed.

And that’s something I can go over on in another podcast, but also I want to provide resources on that. So it’s not just spinning head or doing math while I’m talking type thing. But let’s jump to 301 because this is where it gets more advanced because what happens is adding additional $10,000 a month in your business right now might sound very doable.

Kind of depends on where you’re at. You’re like, oh yeah, you broke it down. I just need to get a hundred new leads. You know, let’s just say that your math was similar to mine in the business. That’s great, but that’s not the kind of math I want you to do. Let’s 10X that. That’s a better question to start asking.

Okay, I want $100,000 in my business next month. Now start to answer the questions of what would have to happen. And it doesn’t matter how many, like we’re not doing math at that point anymore. We could pretend like we just need a thousand leads and that’ll get us there. But that’s not what’s actually going to happen.

You and I both know it. Because if I shoved a thousand leads into the front of your business and you’re really only equipped to handle about a hundred or 150, but you can’t handle the sales conversations, you can’t fulfill on the new customers, even if you were to get them, you can’t, you can’t pay for the advertising.

You don’t have the time to go do the marketing for that. You just, you don’t have everything breaks, right? And you’ll realize, oh, here are the bottlenecks. Typically you are the bottleneck. So now the question is only like, how do I find the right people to do this? And that’s where scaling actually gets hard.

Scaling is not hard. And most people can math scale to a pretty decent sized business because you can just do everything. You can, you can outsource your marketing, which I highly recommend you to outsource your marketing. Cause to be honest, outsourcing your marketing is a very nominal fee. You know, if you hire an agency or, you know, a person or something like that to do a lot of your, the marketing that you should be doing that, you know, you’re not doing, that’s the first thing that you can outsource.

You can outsource all of these things, but eventually you’re going to need people, people in the business where you’re not just doing it. A local, you know, community event for a brick and mortar business. Yeah, you can do those for a long time and I recommend it, but then who can do it in your place?

Then fulfillment. Are you really the only one who can fulfill? No, let’s hire people who else can fulfill. Do you have to be the one to have the sales conversation? No, you can absolutely farm that out. Now we’re, we’re having to succeed through people, which is something I’ve talked a lot about on this podcast.

But now that’s where scaling ultimately always ends up. You can math your way, you know, to a pretty sizable business, just with just you and just doing the simple math that I did at the beginning of the podcast, just, okay, I want this output. I need this many inputs, but that is eventually going to break.

And so what you’ll realize is the only thing that’s actually stopping you from true success is learning leadership, management, hiring, and acquiring skills that aren’t you. The sooner you can realize that’s going to happen. If you truly are an entrepreneur who wants to scale, the sooner you’ll start working on that skillset, working on your leadership, working on hiring, working on developing and managing talent.

Those are, that’s the answer to every scale problem. It eventually gets there. Now if you don’t want to be that person, you absolutely can just decide to run a small business with you and maybe a couple administrative help type hires and that’s it. Maybe you outsource one or two things, but that’s it.

Just know you are going to be capped and you can’t ever play the game of how do I 10x this. Only way to 10x is through people. That’s learning the hard skills of leadership, management, like I said, acquiring and managing talent, all very difficult things. So that is reverse engineering 101, a glimpse of 301 of how, hey, eventually you’re going to get to people.

Might as well start focusing on that now. I will do another podcast, like I said, and provide additional resources for 201 where we can get super deep into the weeds of every little lever you can pull to get maximum efficiency before you have to go down into this multi-hiring world. But until then, try harder.