The Math To Build a $1M Accounting Firm in 2025

I own a marketing agency responsible for millions of dollars generated for clients in the last year alone. And in this video, I want to show you the only marketing KPI that we care about, the only one we pay attention to, borrowed directly from Alex Hormozy himself. If this KPI is working, you've got a scalable money printing machine. But if this KPI isn't working, then you've got a disaster waiting to happen and you're going to be running into cash flow issues like that. So in this video, I'm going to show you what this KPI is and why it's the only KPI that you need to be tracking. I'm going to show how to calculate this KPI for your B2B firm. And I'm going to show you how you can troubleshoot when this KPI isn't on track, what levers you can pull to get it back on track and make sure that you're hitting benchmark and you're not running into those cash flow issues with your marketing. All right, let's get into it. So this KPI is what we call CAC to ltgp. Now, what does this mean? It's actually a ratio of two different KPIs. So CAC is your cost to acquire a customer and. And LTGP is your lifetime gross profit from that customer. And so essentially this is a ratio that shows you the difference between what you spend in order to get a customer and how much profit that customer produces for you over their lifetime. All right, let's talk CAC first. Now, a lot of marketers will tell you that CAC is your ad spend, basically. And so if you're spending $5,000 a month on clients and you're getting five new clients, then your CAC is $1,000. But that's not necessarily honest because your CAC also has to include the fee you pay your ad agency or your media. It also has to include software costs associated with your marketing for any platforms you're using on the marketing front. Your marketing team salaries and literally any other costs associated with your marketing have to be rounded up into cac. And stick with me, because I'm going to give you a real life example in just a moment. But moving on to ltgp, lifetime gross profit. Now, this is a formula of how much your average customer pays you over their entire lifetime, minus the cost of delivering that service or over their lifetime. And so ltgp, just to put it very simply, if your average customer is worth $1,000 a month, they stay for six months and it costs you, let's say $500 a month to deliver on that service. Then your lifetime gross profit, of course, is $3,000. And so what you need to include in here, to make sure you're calculating this properly, you need to include staff salaries for any delivery related team members. You need to include software that you use for performing services, physical tools or hardware that you use, Just literally any other costs that come up that associated with delivering this service. And so getting back to this ratio here of CAC to LTGP, a really healthy target here is anything over 1 to 3 or maybe 1 to 4, meaning you spend a dollar to make $3 in gross profit or $4 in gross profit. But here's the thing, the higher this number is, the faster you can scale. A lot of times if you have a really high ratio here, it's kind of a short term opportunity. These things don't tend to stick around for super, super long. And so you got to kind of hit it while the iron's hot. You find a really great offer that's easy to deliver on. Customers are really sticky and they pay you a lot of money. And if you pair that with the right marketing opportunity, that's where you could realistically find a 1 to 10 or a 1 to 20 ratio, meaning every new customer you bring on pays for the next 10 to 20 customers that you're gonna go out and get. But if you've discovered this, it's only a matter of time until other people discover it and it becomes a little more saturated, a little more competitive, and you kind of go back down to that 1 to 3, to maybe 1 to 5 range. And so it's really a matter of just recognizing the opportunity when it's there. Because you're calculating this number now and you'll be able to see when you have these high ratio, you'll hit that scale button really, really hard. You'll capitalize on the opportunity while it's there, and as the market gets more competitive, well, guess what, you're now way, way ahead of any new competitors who just discovered this type of offer in this type of marketing opportunity. And so you're going to be way ahead of them for years and years and years to come.

All right, I put together a spreadsheet here because I want to show you a hypothetical scenario and how we would calculate CAC to LTDP here. So you can see right now this business is sitting at a really healthy one to four and a half ratio here of CAC to ltgp. And I'm Going to show you how we came there. And then we can kind of get into, you know, some levers that we could pull in order to increase this CAC to LTGP ratio. So let's say this is a fractional CFO firm, Right. And so let's start with LTGP and how we're calculating that. So we're saying that these guys are bringing on five new customers per month at a price point of on average, 3, 500 bucks a month. Okay. And so that means we're hitting $17,500 in new revenue every single month. Now, the average lifetime of a client is just 12 months. And so these people are basically sticking around for a year, which gives you a lifetime value for any given client on average of about $42,000. So this is all the revenue generation stuff. Let's look at costs associated with that. We've got $50,000 a month of team salaries that we're dedicating specifically to client delivery. We've got about $3,000 a month of software, giving us a total Delivery cost of $53,000 per month. Remember, this is a CFO firm. This is completely knowledge based. They might even be remote. They might not even have a physical office. Right. So if you just divide this out per customer, that's basically $10,600 of delivery costs on a $42,000 lifetime value. And so lifetime gross profit is $31,400. Now let's talk about how we're acquiring new clients. So these guys are doing a couple of things on the client acquisition front. So they've got a content agency that they're paying $7,000 a month. With that kind of budget, you're probably doing YouTube and Instagram content maybe or short form on some other platform. They've also got an ads agency that they're paying $4,000 a month, and they're spending $5,000 directly on ads. Now, they also got a sales team, right? Because this is a, this is a pretty big company. You know, we're taking on five new clients a month at $42,000 of lifetime value. I mean, this is where they're. They're doing about $2 million a year. And so we're spending about $17,500 per month on sales commissions. Okay. So essentially paying out the first month's payment to the sales team. We're spending about fifteen hundred dollars on software on the marketing and sales front. And so that brings our total marketing and sales spend every single month to $35,000. And so if we're bringing on five new clients from this total spend of $35,000 that it costs us $7,000 to get a client. Now, here's where they might run into issues, right? Because we're only bringing in $3,500 on the first month for each new client. And so essentially, we're only covering half of our cac. In other words, it takes two months for a client to pay for themselves. Not the worst case. You can see we're still at a healthy cap to LTGP here. But what are some levers that we could pull to both increase this ratio and, and get our customers to hopefully pay for themselves when they're coming in? So what can we do to either increase this cap to ltgp or potentially get our clients to pay for themselves month one? Well, let's talk about that. So in order to just increase our cap to ltgp, let's look at this and let's see what's going on here. The first thing that sticks out to me is actually just that this lifetime of a client is actually pretty short. I've worked with a few CFO firms in the past. They tend to be a much stickier service than that. So what I'm going to say is these guys are probably not spending enough on their team. There's probably a key hire that they're missing. Let's say that's $10,000 a month. And by hiring this person, they're going to be providing a better experience, and clients are going to stick around, on average six months longer. And so now what we've done is we took our lifetime value from $42,000 to $63,000, which is awesome. We also took our lifetime gross profit up to $50,000. By spending more on that team member, customers are sticking around longer, and so they're worth more over the course of their lifetime. And so now look at what this has done to our CACT LTGP. We just went from a four and a half to a 7.2. Okay, so for every dollar we spend on marketing, we now make $7 back. So we just increased the lifetime. But what other levers can we spend? Well, realistically, we could just spend more on our marketing to get more clients. Right? Because we have a really profitable marketing and sales machine. Who's to say if we didn't double our spending there that we wouldn't double our. Our new clients per month? Right. And so now that we've increased our lifetime value, every new customer is worth a lot more. Let's say we, we give our cocktail agency a pay raise, and we're spending a ton more on content. We're still spending the same amount on ads. And the way I'm thinking about this is content has the ability to be an exponential growth curve, right? So if you double the amount of time, effort and money that you're putting into your content, you could get more than double the output. If you double the amount of money that you're putting into your ads, you'll probably get a little bit less than double the output because ads tends to be a diminishing results curve, where content tends to be an exponential results curve. So what I'm going to say is we're going to double our content spend and we're going to increase our ad spend by 50%. And so what that's going to do in this hypothetical here is that's going to bump us up to now 10 new customers per month that are coming through. And so one thing we did here that's really cool is we dropped our CAC actually by $800 as we scaled. This is, this is super uncommon because people don't understand how to do this the right way. Most of the time. Your CAC should go up. Your cost to acquire customers should scale should increase as your business increases and as you take it on more new customers and as you're spending more on marketing. Right. Overall, marketing tends to be a diminishing results curve. However, when you go for creative solutions rather than just throwing money at your problems type of solutions, like we talked about here with doubling our content but not doubling our ads, putting more of that budget into content. We know content tends to be more exponential results and we know ads tends to be more diminishing results over time. And so we're going to be putting more of our money into content, creating a more profitable marketing machine. So we just dropped our CAC, $800 per client. And so now you can see what this has done to our cac, to ltgp. Because we reduced CAC and lifetime gross profit stayed the same. We now have a 1 to 9.1 ratio, which is awesome. And so this CFO firm is getting in a really, really good position to be able to scale like crazy. Now, the truth of the matter is, if you're taking on 10 new clients a month when you used to be taking five, your customer service team is probably going to have to increase quite a bit. So let's say we need to hire two more people here and maybe an outsourced team from the Philippines. And so now we're going to be spending $80,000. Call it 85,000amonth. And then our software bill goes up to about 5,000. All right? So now our lifetime gross profit is still really healthy at $54,000. And our CAC to LTGP is still really healthy. And we've got an awesome beefed up team who's crushing it for our clients and delivering a really great CFO service.

All right, what if you're trying to.

Put together these numbers and it's just the math? Isn't mathing right? You're at like a one to two and a half ratio and you're like, this isn't going to work. This isn't going to scale. Well, there's two common reasons why your CAC to LTGP could be off. Okay? And it really comes down to just the two KPIs within this ratio, right? Either your CAC is too high or your LTGP is too low. In other words, you're spending too much on marketing per customer or you're not making enough profit per customer. And so there's a couple common mistakes that I see here, and I want to address those, starting with just your lifetime gross profit being too low. Right. And the number one problem I see all the time with this is just your onboarding process just scares people away. And so as soon as you make the sale, you get the agreement signed, you get that first invoice paid. Well, your onboarding process is going to set the tone for the next 6 to 12 to 18 months with this client. And so if the onboarding process isn't up to par with the customer's expectations of you, then they're going to kind of start to edge away. They're going to be one foot out the door the entire time working with you, and they're not going to be as sticky as they otherwise would be if you just blew them away with your onboarding process. Another common reason why LTGP can be too low is you're just letting the wrong people in the door in the first place, right? So especially in a season of scaling, you might be a little bit hungrier for those new clients because you're working really hard to scale. You're building out your team now, you're paying more salaries, you got to feed your people, and. And so you're going to take in prospects who you maybe wouldn't if you were being a little bit pickier. And obviously, if you take in a customer on who's not a great fit for your service, they're not going to have that perfect experience that a great fit customer would have. And they're obviously then not going to be as sticky over time. And so if your average customer stays for 18 months, a bad fit customer might only stay for six. Right? And that's going to drive this LTGP number way down because you got this like subset of, you know, 10% of your clients aren't really that great a fit. And, and so they're churning really quickly as opposed to the rest of your clients are great. They're staying for a long time, but it brings down the entire average. The third common problem I see from a lifetime gross profit perspective is just there's no clear ascension ladder. And so this might not apply to a monthly service if you have, you know, like this CFO service we use in the example, let's say, to stick in the accounting world, maybe you're a tax service instead of a CFO service. So a tax service tends to be like a once a year billing kind of thing. Some people bill quarterly, some people bill a subscription, but really it's a one time value. And so using an example here of one of my clients, he charges $5,000 a year for tax strategy and $2,000 a year for tax preparation. And what a lot of people do is they come in the first year for tax strategy and so they're worth $7,000 in the first year, but the second year they go, oh, we did tax strategy last year. Nothing's really changed in my situation. I probably only need tax preparation. And so now they're only worth $2,000 a year after that. And so in this particular example, there's not a clear lever you can pull to get customers to come back around for tax strategy or to be stickier for that service. But are there other services that you can ascend them into or is there a higher level, higher touchpoint offer that you could ascend them into? Now, what if your lifetime gross profit is actually fairly healthy and you're just spending way too much money on marketing without really getting any clear ROI from it? I see this all the time, right? Like if I had a dollar for every company that came to me and they were working with an agency, they weren't really getting a clear ROI from it and the agency was simply telling them, oh, we need a little bit more time, we need a little bit more time. This reason, you know, your pixels that seasoned or content just takes time, man. Like, there's any number of excuses that they can throw out there, but what it comes down to is they're Just not getting a clear ROI from their marketing. And so they're spending five, seven, $10,000 a month. And maybe they're getting one or two clients from it, maybe they're not getting any clients from it. Because there's no clear attribution of whether clients are coming from this marketing they're or whether they're just coming from the referrals and the word of mouth that they were getting previous to even hiring an agency. And so that's problem number one, right? Like you don't have clear data to track your roi. And so really the solution here is you just need to get plugged in with the right data analytics. Now this is going to vary based on what type of marketing you're doing. But having your front end CRM set up the right way so that you can tell the difference between a lead that comes from ads versus a lead that comes from content versus a lead that just found your website through Google search, that's going to be really, really important here. Being able to attribute those leads to the different sources and see which sources are generating you the most profitable leads. That's how you can make decisions. Like I made on that spreadsheet example a moment ago to double content, but only up ad spend by 50% because in that hypothetical example that company is more profitable from content than they are from scaling ad spend. Now there's a second common problem I see from a marketing perspective, which is that marketing and sales just aren't really aligned. And so imagine you've got a company, you got up to a couple million dollars a year basically just straigh strictly from referrals, word of mouth and kind of just organic traffic online, right? Review sites, Google traffic, you know how it works. And so at this point you're doing two, two and a half, three million bucks a year. You got a sales team built out, they're taking all your sales calls, bringing out all the new customers, and now you're going to start running ads, right? Well here's the thing, you got to realize you built a sales team that's equipped to do really, really well with organic word of mouth referral traffic. Selling to people from ads is a completely different ballgame. And so your ads agency or your marketing manager who's building this ad funnel could be doing their job completely right. And your sales team just isn't able to close these people because it's a completely different sales process. And that's the thing that catches a lot of companies blind when they start doing some quote unquote, real marketing, your sales team has to be prepared to handle the lowest common denominator of leads and still be able to handle that. And so if your sales team can close 20% of leads from cold traffic, aka Facebook ads or Google Ads, then you're in a really good position to be able to close 50, 60, 70% from referrals or word of mouth. But if your sales team is closing 30% from referrals and word of mouth, then you might not close a single deal when it comes to cold traffic from your ads. And so really, the solution here is you just have to have your sales team prepared to crush it with the lowest common denominator leads. Right? If they can succeed with the lowest common denominator, then they'll crush it with those way warmer, way more interested, way more trusting leads from your organic your word of mouth and your referrals.