The Mathematics of Business, Explained | Ep 990
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode of The Game with Alex Hormozi, the serial entrepreneur shares 12 critical business rules of thumb he's developed over 14 years of building companies, including his portfolio that generates over $250 million annually. (00:45) Hormozi breaks down essential metrics and relationships that determine whether a business is truly ready to scale, covering everything from pricing strategies to cash flow optimization. The episode serves as a comprehensive guide for ambitious professionals who want to analyze their business performance with clear, actionable benchmarks rather than relying on guesswork or industry averages.
• Core Focus: Practical business metrics and ratios that reveal whether you're solving real problems or just managing symptoms in your business
Speakers
Alex Hormozi
Alex Hormozi is a serial entrepreneur, investor, and business strategist whose portfolio companies generate over $250 million annually through Acquisition.com. He recently broke the Guinness World Record for fastest-selling non-fiction book with $106 million in sales in just nine weeks, and is the author of multiple business books including "$100M Offers." Hormozi has spent 14 years building and scaling businesses across various industries, developing systematic approaches to growth that he now teaches to other entrepreneurs.
Key Takeaways
Price According to Close Rates, Not Feelings
Hormozi reveals a counterintuitive pricing strategy: if you're closing 80% or more of prospects, you're likely underpriced by 3-4x. (01:12) This isn't about being greedy—it's about mathematical optimization. When you're closing 4 out of 5 people who talk to you, it signals that your offer is so compelling (or underpriced) that you're leaving massive revenue on the table. The sweet spot for most service businesses is a 35% close rate with proper sales processes in place, indicating appropriate pricing that maximizes both revenue and profit margins while maintaining sustainable growth.
LTV to CAC Ratios Must Account for Human Complexity
The traditional 3:1 LTV to CAC ratio only works for fully automated businesses like pure SaaS products. (06:12) As soon as you add humans to your business model—whether in sales, delivery, or marketing—you need much higher ratios to account for inconsistency and training costs. Service businesses should target 9:1 or even 12:1 ratios because humans create "lumpiness" in performance. When you hire new team members, they won't perform at the same level immediately, and your business needs financial padding to absorb these inevitable inefficiencies during scaling.
The Rule of 100 Eliminates Feast or Famine Cycles
Consistency in business comes from volume, not luck. (16:57) Hormozi's "Rule of 100" means taking 100 actions daily for 100 days in your primary customer acquisition channel. Most small businesses experience volatility not because of inconsistent lead flow, but because the measurement timeline is too small and the volume is insufficient. Companies doing 30x more sales are typically doing 30x more advertising. The solution isn't optimization—it's volume. When you commit to massive action consistently, results become predictable rather than sporadic.
60-Second Lead Response Time Is Non-Negotiable
Responding to leads within 60 seconds can 4x your conversion rates compared to waiting even a few hours. (22:27) This isn't just about customer service—it's about capturing intent at its peak. When someone opts in or inquires about your service, they're at maximum interest and decision-making mode. Every minute you wait allows doubt to creep in, competitors to be contacted, and urgency to diminish. Fast response times are a direct indicator of business excellence and commitment to results. If you can't afford someone to respond quickly, consider that 4x better conversion rates would easily pay for that person.
80% Gross Margins Are Minimum for Service Businesses
Hormozi insists on 80% gross margins as a baseline for service businesses, which may sound aggressive but is mathematically necessary for scale. (36:19) The difference between 70% and 80% gross margins isn't just 10 percentage points—it's the difference between $233 and $400 profit per $100 in costs. Your net margins can never exceed your gross margins, so if you want a 50% net margin business, you need that 80% gross margin to cover all other expenses including marketing, operations, and overhead. Lower margins force you into a commodity business model that's unsustainable at scale.
Statistics & Facts
- Hormozi's first year at Gym Launch achieved a 100:1 LTV to CAC ratio, meaning he spent $100 to acquire customers worth $10,000 in lifetime value. (12:12) This demonstrates the power of finding massive arbitrage opportunities in business models.
- Adding financing options like Affirm can increase overall sales by 35% while accelerating cash flow, allowing businesses to serve customers who couldn't otherwise afford the full payment upfront. (50:39)
- His Amazon book conversion rate is approximately 25%, meaning one out of four people who click on his book page actually purchase it, demonstrating the power of leveraging trusted platforms for higher conversion rates. (57:34)
