Metrics Tracking Is Hard, Until You Do This

Hey, it is Matthew Larsen, and this video is going to be a very important one because I think what I'm about to show you can really be drawn back to the reason that so many people fail in business, or there's so many people get stuck at a certain revenue level. And this is going to be at least 2 different things here, maybe 3, depending on how I choose to break it down, but it's going to be The topic of reverse engineering and a subtopic of you need to have your metrics in order to do that. So let's just start here, right here. I am in an app I created called HyperOptimal, and reverse engineering is one of the features inside it. So we have it here. This is basically a calculator on the screen that will help us learn what we actually need to do to hit our goals. And I don't think anybody really— many people get to this part. I would say that in terms of, if you're going to do this, you have to actually have your metrics tracked. And if I had to break down after I've worked with maybe 1,000 different businesses at this point, I would say about 95% of businesses don't track metrics or track all of the metrics that they need. Another 3 to 4% don't, or they are tracking their metrics, but usually they're just tracking them improperly. Like the formula or whatever they're using is just not tight and it's just not really getting the truth of the matter. And then that leaves 1 to 2% who are tracking all of the metrics they need and they're doing it properly. In terms of the metrics that people need, I think that in terms of the customer acquisition side, at least of things, all you really need is 5 margin or 5 numbers, net margin, monthly churn rate, average monthly retainer, your close rate, either booked call or shown call. Doesn't really matter on the math. And then your cost per call or cost per shown call. You just have to make that last one consistent. And these 5 metrics are so important because if you have these 5 metrics, you can really reverse engineer absolutely anything that you need in your business in order to do it. And this workflow is one that every business owner needs to do. And the reason for that is if we think of everything we want to do in our business as increasing revenue, increasing speed, increasing margin, or decreasing risk, this is all about decreasing risk. Like absolutely. It is extremely risky to try to scale your business if you don't know your numbers and it's extremely risky and a big waste of time. You can argue that that decreases speed to just kind of live, live, live, live aimlessly. I don't even know what I'm doing. I don't know my numbers, whatever. So when you do find your numbers, a few things happen. This is what I alluded to earlier. Let's say at least two things happen. The first, it really is a big aha moment when you see everything tracked properly, because you wouldn't believe how many people will hire me for a service, whether that's consulting, whether that's lead gen, whether it's a software, come on the calls and look me in the eyes and say that they don't churn anyone. They close everybody. Their margin is 70%. And it's, I don't even think they're lying to me cuz I don't really see a point in that. We can just kind of see after 25 minutes of working together what they actually are. But I think that a lot of people haven't ever tracked it before and they haven't really thought about it and they are kind of living in a, a life of delusion. And I always see their eyes open up and I might have, you know, call recordings and call recordings of like this face, or just if they're doing it on their own, like screenshots and screenshots. Wow, that was really eye-opening where their net margin's always lower, their churn's always higher, their close rate's always lower. Usually they get their cost per call right, but there's never been a situation for me where they underestimated their net margin or underestimated their churn rate or underestimated their close rate in maybe 1,000 clients at this point. It doesn't happen. So that's aha moment number 1. Aha moment number 2 is what I'm going to go through on the screen here. It's reverse engineering because we can really see like what we have to do in a literal step-by-step. What we're doing here is we're going through this workflow to take the hypothetical or the theoretical and put it into motion. So let's go here. Let's just, and we can edit these numbers. Let's say that we want to make $1 million, right? That seems good. And let's just say that we have a net margin of 15%, which is pretty normal. Let's say we have a monthly churn of 18%, which especially if you're an agency owner, trust me, that's quite normal. Say we're charging $3K per month per client. Let's say All in all, we close at about 20% as an average between paid ads, outreach, referrals, organic, you name it. Let's say that to get one decent call, we have to spend $500 per month on ads. Depending on who you are and your situation in business and you're watching this, this might seem average, it might seem bad, maybe it might seem good. But if this, these numbers seem really bad to you, You don't really probably are not exposed to the average agency, the average sales-led service business out there. These are very, very normal. And if you're doing better than this, that's great. But the point of that is to really break down what I mean here. So let's zoom in a little bit. So let's extrapolate here. And I think that these 5 metrics are so important to track properly because we can extrapolate everything. So I would always track my net margin as simple cash in, cash out from the bank. You know, projections are one thing, cash in, cash out's another. I would track my monthly churn rate basically with a spreadsheet or with my tool here, or, you know, the date your client churns in there. It's just a percentage. The median monthly payment, all revenue from subscriptions or retainers divided by number of clients. Close rate. You could either do it booked call or shown call, either one. I have booked call in here. Just, you know, the number of booked calls or number of clients divided by number of booked calls times 100, and then your cost per call. If you're doing with ads, that will just be a number, total ad spend divided by total calls booked from ads, right? We can underestimate a little bit because we might have cheaper calls from referrals and stuff, but if we're really trying to scale, we're going to scale on cold traffic. So this is going to be fairly accurate. So let's see here, because if we have a $1 million net profit goal and we have a net margin of 15%, that means the revenue that we need in order to hit that goal is $6.66 million. It's just how it is, right? If we are, have a very, very average 18% churn rate, that means the clients are basically staying 5.5 months with us. We'll call it 6 months. If we need that $6.6 million revenue and we are charging on average $3K per month and clients are staying 5.56 months, that means our LTV in terms of revenue is $16.6K. And if we take our revenue required divided by our LTV, that means we need 400 clients over the course of a year to achieve this goal. That's a little over 1 a day, right? So if we take those same 400 clients and then we basically have a 20% close rate, we close 1 in 5, that means we need to get 2,000 calls in order to achieve this goal. Everything is brought back to the goal. If that's the case, Monday to Friday, we'll need 7.69 sales calls, or if you average that out for a week, 38. 0.46. That means we need about 166 calls a month. If our closers take 25 per week, which I have that here, that means we're basically, you know, need 2 closers because we need 1.5 closers. That's not really possible. And then if you want to keep those closers' calendars, you know, full with inbound and outbound leads, that means we need 3.08 appointment setters. So we're going to do that down. So that means that's really what I need to achieve my goal here. Then we have it here, and we're going to use paid ads as our acquisition source here. And if we got $500 per call, that means we need to spend $3,846 per day on paid ads to achieve our goal. So if all those numbers were true that I mentioned before, that net margin, that monthly churn, that median monthly retainer, the close rate, And we needed $5, $500 cost per call. Really all we need to do in our business is spend $3,846 per day on ads. That's a lot, right? And this is a very, very average business. Trust me, no one has seen more very, very average agencies and very, very average service-based businesses more than me. And this really represents most of it. And if you wonder, And let's say you're a little bit more high level and say, oh, it's pretty easy to make $1 million per year. And you just can see why most people don't get there because with their metrics, they would need to spend $3,846 a day. It's just not realistic for most people. They just don't have that cash flow. Like, or not, or their cost per call is going to balloon. You know, they just don't want to take that risk. Right. So if you have a bigger business, like Here's what can do. So let's go to my business right here. This is my consulting and my software business. Let's say I want to make the first same million dollars. And this is like, that was aha moment number 2 for you. So the first one is getting your metrics tracked. The second one is, you know, doing this process like this is what you'd have to do. And the third is how it could be for you if you got a better business. So let's do 2 scenarios here. Actually, let's do if we just improve their business by 20%. And then let's do it if we just, you know, did it as a really good business or my current business. So let's remember this daily ad spend. This is at, you know, average business, $3,846 a day. So let's see if we helped this average business, like just go 20% better on all their metrics. I would say that's fairly attainable over the course of a year. And I hope you agree, but 15% becomes 18%. We'll notice right away that to make that same million dollars, we actually need $1.1 million less revenue. So already we're kind of going in the right direction. Let's take that 18% churn. What is that? 3.6. Let's just take this to 14% instead. So now instead of 5.56 months average relationship, it's 7.14. Let's take this monthly retainer up to $3,600 here. So now our average LTV is in terms of revenue is $25.7K instead of, I believe it was $16.6K before, but already we're dropping to 216 calls instead. And instead we are 216 clients required instead. And I believe it was 400 before. Let's do this call to 24% close rate. Now we need those 900 calls and I believe it was 2,000 before. We'll keep this all the same and we'll go to $400. So as you can see, just by increasing our levers in our business by 20%, we have basically taken it from $3,846 cost per call to $1,300 average business times 20%. So like, as you can see, you get really, really excited here. Like this is starting to look like a really decent business here. It's perfect. Not perfect, but the chances of us having to, or chances of us like achieving our goal is basically, you know, 3 times as likely. It's almost 1/3 of the ad spend before, $3,800 to $1,300. But what if you had a really, really nice business? What if you got your profit margin to 40%? What if you got your monthly churn down to 7%? What if you charge something like $5K a month? Just for what if you closed about 30%? And what if you had a $200 cost per call? You really mastered these things. This would be similar to my businesses, quite frankly. Now let's look at the difference. A $1 million net profit. That's what we wanted to get. Now, instead of, I believe it was $6.6 million before, now it's only $2.5 million to make that same million-dollar profit. Now, instead of the 5.56 months at the original thing, now our clients are staying 14.29 months. Now instead of that $16.6K LTV at the start, $71K LTV. And now instead of getting 400 clients and 2,000 calls, we need to get 35 clients and 116 calls. Just imagine that. And then that $200 cost per call. Think of this, this one. So $90 Matt's business. Let's take this for a second. So $3,846. Divided by 90. So you really can see, like, if you wondered how people can make so much money and how people can scale so much better than you, for example, like, this is really, you know, this business here is in, you know, you could very well argue 42.7 times better than the business. And without like really going into it. I'm going to put my hour timer because I track my time without really going into it. Like, this is how people make, let's just say, 42.7 times more, more money than you, right? This is how people do it. So that's aha moment number 3. You get your metrics tracked properly, right? Then you do reverse engineering number 1. Then you do reverse engineering number 2, which is an average business. And then you Big aha moment. What if I had a great business? And that's reverse engineering part 3. So like, this is what you need to do because going to my second point, the first transformation is awareness. The second transformation comes from now you have it on the screen and you can no longer ignore the problems in your business. They're standing right there in front of you. And that actually, I noticed this in myself and others, it forces you to take action. You know, if you're like, really fucked at some point in your life and you're just, for me at least, I take a lot of action when I'm really fucked. It's happened maybe 4 times in my life. Like this is a visual representation of you are super fucked and like the difference is night and day when you actually get this tracked. My tool HyperOptimal does that all for you and it's all in the tools in terms of pulling all the data in and then doing all of this kind of stuff. But you can easily do this with a pen and paper. You can easily do this with the spreadsheet. The formulas aren't too hard to do. And what do you do about this? So number 1, awareness, number 2, action. But what do you take that action on? Really, it's when you're first doing this process, like you really want to do and get more leads. Like that's the problem here. Your net margin is too low. You know, you probably have quite some fixed costs. More leads means more clients. It'll automatically go up. And you have better pricing power. Monthly churn is too high. You're probably going to churn all your clients. You need new leads and new stuff. Your monthly retainer's too low. You need more demand for your supply so you can increase prices, you know, more leads. Close rates too low. You're probably number 1, very needy. Number 2, don't have enough calls for a great closer. And number 3, just need practice. More leads will do all of that. Cost per call, just, you know, that's where you're going to get more leads from. So I guess practice, practice, practice on your ads is going to get lower cost per call and you'll figure out eventually. So when you do this, like the next step is to build a complete lead generation funnel, but this is a lot of context and a lot of things that I don't think a lot of agency owners, a lot of business owners do. And you can almost think of it as when you do this process for the first time is before versus after for your business career. I hope this was helpful. If you want, you can come and join me at HyperOptimal and I'll see you in the next video.