Ohne Marge verstehst du dein Business nicht

0:00Gross margins. So, gross margins are wildly misunderstood, which is interesting. Um If you are If you are a business owner, you you have to learn the language of business. All right, it is it is for sure there are there different languages, but there's there's not a huge amount of words you have to know. You might need to know like 100 terms. And think about this is like you were studying for a test, right? Like learning 100 terms not that hard to understand and almost all of them are relationships between two things. That's almost all of these terms are. So, what is gross margin? It's one word that's a relation between two things. How much you charge and how much it cost you to deliver the thing. And the difference between these things is your gross margin. To be clear, that's not your net profit margin, which is a different ratio, right? Between Not necessarily ratio, but the difference between two different numbers, right? But your gross margins are very important because it is what dictates everything else in the business. So, what do I mean by that?

0:56If you like your net margins cannot exceed your gross margins. Think about that for a moment. If you have If you're like, "Man, I'd love to run a 50% net margin business." That's an amazing goal and I love that goal for you. If your gross margins are 50%, that means that you can have literally no other cost besides the thing you sell in the entire business. You can't have any cost of acquiring customers. You can't have any fixed overhead. You can't have any employees that are not specifically in delivery. You can't have any admin, any help. Of course. Now, the likelihood of of you getting to a 50% net margin when you have 50% gross margins is basically zero.

1:32And so, this is why and and traditionally small business owners will undercharge because they sell out of their own wallet, right? And they sell out of their own wallet in two different ways. They sell out of their own wallet because they don't have that much money and so they feel bad charging other people when they don't have much money cuz they're like, "Man, I get what it's like to struggle." And I think there's nothing wrong with that. It's just understand the business is not going to grow and you're not going to help more people. The other reason they sell out of their own wallet is that they believe that the service they deliver is not that valuable because they know how to do it.

2:03So, to quote the Joker, right? My father always told me, when you're good at something, never do it for free, right? And so, the idea is that like you I like if you're good at fixing cars, right? You're like, well, it comes naturally. It's not that hard. You got to know where the you know, it's like it's what we do is really straightforward. To you. To you. But to a customer, we have to sell off the value of what their life would be like if they didn't have this problem solved. That is what we have to charge off of. And when we charge off of those prices, then we create more opportunity for gross margin. Now, here's why this is so important.

2:38Let me give you a math example that will blow your minds. And I always, you know, everyone everyone gets heart palpitations when I say math. So, let's just say a money example, okay? So, let's give you a money example that'll get you really happy, all right? So, let's say that I've got some service that I that I deliver, okay? And it costs me 100 bucks a month, okay? That's what it costs me in services and whatever, all right? So, if I want to have 80% gross margins, which I said these are rules of thumb, my rule of thumb for services is at least 80, okay? So, I want to show you two different scenarios here.

3:13So, at 80% at 80% this $100, I have to have $500 has to be my price, okay? At 70% and I have a $100 cost Oh god, can someone do the math on this one? Hold on. Mhm.

3:40Um God, I got to do this backwards. Let's see. Da da da da da There's a there's a calcu- Who can do this math for me? 350-ish? Thanks, Leo. >> [laughter] >> Yes, this is live, obviously. I think it's a little higher than that. Is it 400? 350? Is it? Now Now Now it's all up. Oh, no. Who's Who can do this math for me?

4:05All right, I got to do this. All right, 100 equals 0.7. Julian, you were pre-med. Do it for me. All right, well, I'll do I'll tell you what I'll tell you what 90% looks like. >> [laughter] >> Equals $1,000. >> [laughter] >> All right, where is it? Where Where are we at?

4:30Why you jackasses keep asking to buy Thank you, Gross Alonz. Is it 350? Is that it? We should We should know this. I feel like as a collective community, we should be able to figure out when uh 30% Okay, so it should be 100 / 0.3 is what it should be. So, 100 / 0.3 right? Is 333. Thank you. So, that would mean that 233 should be 70%.

4:56Um So, 233 / 333 Correct. Thank you. Okay. So, 333 Okay. So, look at how big of a difference this is, right? Between these Between these numbers. Um really significant, right? Like very materially different. And so, the reason, and I'm sure somebody will correct this in post, but fundamentally look at how Like when people are like, "Oh, well, my my margins are at 60%, so I'm close to 80." It's like, bro, we're not even Like you're in a different stratosphere. Okay? So, let's take this to the natural end.

5:32If you have a business, let's say that runs 20% margins at net margins at the end of the year, what you can pay yourself, right? If we say, "Hey, is there a way you think we could go from 70% to 90%?" Well, that that sounds like it's not that big of a deal. But when you go from 70 to 90, what happens to the actual margin? It double. You make way more money. And sometimes it means a lot more than that because sometimes the incremental margin is all margin, whereas every dollar revenue up to that point covered cost, right? And so, what is our We make $233 here, right? We make $400 here, and we make $900 here per customer.

6:13Big difference, right? And so, when people hear these numbers, because these numbers look similar, they think that these are going to be very similar, and they are not. And so, this is why I'm so adamant that 80% is my minimum. I target like that's my baseline. And then from like I will not get into a business with less than 80% gross margins. I won't do it. Because I know that I then have to run everything else off of this 80. Right?

6:38So, if I want to have a 50% net margin business, I only have 30% left. I got 30% to cover everything else. I got to cover rent, I got to cover admin, I got to cover insurance, I got to cover um I got to cover uh marketing, I got to cover sales. I got to cover everything else with just this 30%, so I can have 50% left over. Is this Is this ringing Is this ringing with you guys? Is this making sense? Even if it's a service-based business, bro, this is for service-based businesses.

7:06Not to you in Australia. This is for service-based businesses. And this may This is why like So, ideally, I like to have I mean, again, this is minimum. And I know this is going to blow your minds here. Like I like One of the first things we did when we fixed gyms is we made sure the pricing was at least 80% gross margins.

7:33That's a service business. Now, some of you are like, "Well, there That's not possible." Of course it's possible. It's not possible when you sell a commodity. If a customer can look at your thing and somebody down the street's thing and say these are about the same, I'll buy the cheaper one, you sell a commoditized service, just like you can sell a commoditized product. And so, you might have salt and salt and you got FSG salt and whatever X, you know, pink Himalayan, it's salt, right? And so, how do we make these two things different?

8:03We have to brand. It's pink Himalayan versus just normal salt, right? And they charge a premium for that. And so, you have to figure out how to reconfigure. If only there were a book written about how to make an offer that's decommoditized so that you could achieve 80% or higher gross margins, that would be amazing, wouldn't it? And for those of you don't know, I wrote a book on this. It's called 100 Billion Dollar Offers. It has 27,000 five-star reviews. You should read it. But I I want to draw this because this is like if you're trying to figure out what's wrong with your business, it's usually because your margins are off. You're mispriced. But again, sometimes this is this is the this is the fundamental mathematical problem with the business.

8:39But this might really be the symptom of the fact that you have a commoditized offer, A. B, you have a sales process that doesn't function properly, right? Um and so, that's the that's the big idea. So, if you want to run a high-margin business, then you have to earn exceptionally high gross margins for whatever it is that you sell. Okay, cool. That math was tough, wasn't it? All right. So, let's do rule number eight, rule of thumb number eight, if you will.

9:03Uh 30-day cash collected. So, this is a this is an add-on to the the the 30-day payback period. So, what is the exact amount of money that I want to have collected within that 30 days? It's going to be COGS, so the cost of delivering cost of goods sold, I'll just write out cost of goods sold. Now, the goods sold can be services too, to be clear. So, it's cost of goods sold, how much it cost you for the stuff, plus cost of getting customer.

9:39Okay? So, if we have the cost of getting the customer and the cost of whatever we got them back, we want both those things together. We want whatever we collect to be greater We want the gross profit of the cash we collect in that first 30 days to be greater than this plus this.

10:06The reason this is so magical is that once this occurs customer comes in, you acquire that customer, and then you have to deliver on that customer. And then that customer pays you back all of that cost, and then what can you do? Go get you another customer. That is why it's so magical. And so, that is what the whole point of this 30-day cash collect thing is. We want to pull it forward. Cool?

10:31Great. Now, manufacturing, steady with Zoro. Now, manufacturing going to have different margins cuz you have cost of goods sold, and that's going to be a little different. Um I would to be fair, I would still prefer to have a business that has 80% gross margins. But with services for human services, um I I have that as my rule of thumb. Is that I always want 80% or higher gross margins. Okay. Real quick, I'm going to show you the exact 10-stage roadmap from zero to 100 million plus that less than 1% of companies finish I've now done multiple times, and so I can say with a lot of confidence that these are the stages as headcount increases that you need to get through, and I broke each of these down by eight different functions of the business, what the constraint feels like, like what are the symptoms of it when you're going through it, and then what steps we actually took to graduate. And we've done this across software, physical products, uh service businesses, brick-and-mortar, all of this, and it works. And it's my gift to you, it's absolutely free, and so the link's in the description, but you just go acquisition.com/roadmap, just enter your info, and it'll spit it right back to you all free.