Why Things Don't Happen The Way You Expect Them To...And How To Be FREAKISHLY Accurate with Your Predictions Ep 122



In a detailed breakdown of goal-setting and business forecasting, the host, Alex, shares insights from a recent gathering of top sellers in Austin and discusses the practical steps for reverse-engineering business goals with precision. Using the case study of Monica Batar, a gym owner who rebounded from personal challenges to rebuild her gym membership, Alex demonstrates how to set realistic targets and plan for growth by factoring in current conversion rates, attrition, and advertising costs. He emphasizes the importance of using real, present-day business metrics rather than aspirational ones to make accurate predictions, highlighting the necessity of adapting systems to manage growth effectively. He also shares a personal anecdote on overcoming limiting beliefs about his math skills, offering a quick mental math technique to calculate percentages using tens, fives, and ones.

Summary Notes

Reverse Engineering Goals

  • Alex discusses the importance of reverse engineering goals with precision.
  • He mentions his ability to make accurate predictions for his business, Gymwatch, regarding membership numbers, revenue, and growth sustainability.
  • Alex emphasizes the need for detailed planning to achieve business success.
  • The process of reverse engineering goals is described as tactical and beneficial for business growth, as opposed to mere theoretical exercises.

"But one of the conversations that came up during the full day was how to basically reverse engineer goals to a freakish amount of precision."

This quote highlights the discussion on the meticulous process of reverse engineering goals, which was a topic of conversation during a meeting with top sellers.

"And so I make decently far out predictions, six months, nine months away of how many people we're going to have, how much rev we're going to have, what we're going to need to sustain the growth that we want to hit."

Alex explains his approach to forecasting business metrics and growth requirements for the future, emphasizing the precision of his predictions.

Monica Batar's Business Recovery and Goal Setting

  • Monica Batar, a gym owner, successfully rebuilt her gym after personal challenges, maintaining her business's legacy payments.
  • She went from zero to 100 Electronic Funds Transfer (EFT) members in about two months.
  • Alex helped Monica set realistic goals for her gym's growth.

"So she was at 100 efts. So she 100 recurring members at her gym and she had added 50 efts the month before."

This quote provides context on Monica Batar's current business status, indicating her gym has 100 recurring members and the recent growth she experienced.

"She had a huge emotional issue that happened, some big family issues that went on and so she basically closed her gym down and started over and was still able to maintain her legacy payments because of how much she had cash."

Alex describes the adversity Monica faced and overcame, highlighting her resilience and financial management that allowed her to maintain legacy payments despite closing and reopening her gym.

Calculating Membership Capacity and Goal Feasibility

  • Alex calculates the maximum number of members Monica's gym can accommodate based on the number of sessions and people per session.
  • He reassures Monica that her goal of reaching 300 EFTs is attainable, given her gym's actual capacity.
  • The calculation takes into account the gym's schedule and the potential number of members that can be serviced each day.

"And with 45 minutes sessions, she could do 3 hours in the afternoon, 3 hours in the morning, and have eight sessions a day. So that would be 176 people per day that she can service."

Alex breaks down the gym's daily capacity, showing how many people can be accommodated in the available session times.

"Which means she total would be, like 350 ish, right? So I said, I think 300 is a very easy goal for you to hit because your actual max is significantly higher than that."

This quote explains the rationale behind setting 300 EFTs as a realistic goal for Monica, given that her gym's capacity exceeds this number.

Setting a Monthly Membership Growth Target

  • Alex suggests a monthly net gain target for Monica to reach her goal of 300 EFTs within ten months.
  • He proposes an incremental growth strategy, considering Monica's recent success in adding new members.
  • The target is based on a reasonable expectation of growth, taking into account the gym's past performance.

"So I was like, let's set a goal for this that seems reasonable. Do you think gaining, you just did 50 efts in a month? I was like, let's just say that we try and gain 20 net the next ten months from where you're at now."

Alex proposes a monthly net gain goal for Monica, building on her previous success to set a target that seems achievable within the given timeframe.

Understanding Membership Attrition

  • Alex introduces the concept of attrition, which is the loss of customers over time.
  • He calculates the attrition rate for Monica's gym to accurately forecast membership numbers.
  • The attrition rate is an essential factor in determining the net growth needed to reach the goal.

"We also know that her attrition is 6%, which means that she loses 6% of her customers month over month."

This quote acknowledges the reality of customer loss in membership-based businesses and quantifies the attrition rate for Monica's gym, which is critical for accurate goal setting.

Attrition and Growth Calculation

  • Alex explains the process of calculating attrition and growth for a business.
  • He uses an example of a business with 270 efts (equivalent full-time students or employees) and a 6% attrition rate.
  • To calculate 6% of 270 efts, Alex demonstrates a mental math technique by taking 1% (2.7) and multiplying by six to get 16.2.
  • Alex states that to account for growth, one must add 20 efts, meaning the business needs to sign up 36 people per month.

"So if she's got 6% attrition, then I'm going to take, like, one of the last months that she has here... So that's going to be one of the last months near the end. And I'm going to take 6% of that number, okay? Six... That's what, 6%, if you're ever curious on how to do this in your head anyhow, so 16.2 is what her attrition is going to be on that last month... Now, if we also have to add that 20 efts of growth, it means that what she actually needs to be signing up is 36 people per month."

The explanation of the quote is that Alex is demonstrating how to calculate attrition and adjust for growth by using the example of a business with a 6% attrition rate and a goal to add 20 efts, resulting in the need to sign up 36 people per month.

Conversion Rates and Reverse Engineering

  • Alex discusses how to reverse engineer the number of sign-ups needed by considering conversion rates.
  • He mentions that the business converts 66% of people from the front-end program into continuity.
  • By reverse engineering, it's determined that 55 people need to sign up on the front end to achieve the 36 efts goal.
  • Alex emphasizes the importance of using current statistics for accurate predictions.

"So if she has 36 efts that she needs to sign up monthly... So if she's doing 66%, then that's going to be roughly like 55 people... Now, mind you, the way that these stats become accurate is by using the stats that you have right now."

The quote explains the process of reverse engineering the number of sign-ups needed based on the current conversion rate of 66%, which leads to the determination that approximately 55 front-end sign-ups are required to achieve the goal of 36 efts.

Drop-off Rate and Net Sign-ups

  • Alex calculates the impact of a 10% drop-off rate between sign-up and start.
  • To compensate for the drop-off, the business needs to sign up 61 people to ensure 55 actual sign-ups.
  • Alex introduces the concept of net front-end sign-ups to account for this drop-off.

"So if she's losing 10% of people, then it means she's going to be signing up 61 people... She loses 10% between sign up and start."

The relevance of the quote is that Alex is accounting for a 10% loss of people between sign-up and start, which necessitates signing up 61 people to maintain the target of 55 actual sign-ups.

Weekly Tactical Goals

  • Alex breaks down the monthly goals into weekly goals for tactical planning.
  • He simplifies the calculation by dividing by four weeks instead of 4.3 to give a margin of error.
  • Alex calculates that the business needs 15 sign-ups per week to meet the monthly goal.

"So let's divide this by four instead of 4.3... That's going to be 15 people per week that she needs to sign up."

The quote demonstrates the process of converting monthly sign-up goals into weekly targets, simplifying the time frame to four weeks for easier management and to provide some leeway in achieving those targets.

Conversion from Leads to Sign-ups

  • Alex further breaks down the process to determine how many people need to sit down with the business to reach the weekly sign-up goal.
  • He uses a 50% show rate and a 75% scheduling rate from leads to calculate the required number of leads.
  • Alex concludes that the business needs 60 leads per week to meet the goal of 15 sign-ups.

"Which means 22 people are going to actually sit down with her... Now, of the 22 people that sit down with her, she has a 50% show rate, which means she's going to need 44 people scheduled in order to hit that 22 shows... It's actually 59, but I'm just going to say 60 for math sake."

The explanation of the quote is that Alex is detailing how many leads need to be scheduled and how many of those scheduled leads need to show up to achieve the weekly sign-up goal, taking into account show and scheduling rates.

Advertising Spend Calculation

  • Alex calculates the advertising spend required to generate the necessary leads.
  • With a cost of $12 per lead, Alex determines the business needs to spend $720 per week on ads.

"Now, that means that she's spending $720, $720 per week in ads."

This quote indicates the financial commitment required in advertising to generate the 60 leads needed per week, based on the cost of $12 per lead.

Ad Spend and Ad Set Creation

  • The individual is spending approximately $120 per day on advertisements.
  • To achieve their desired results, they create 36 ad sets, knowing that only one-third will be winners.
  • This results in 12 winning ad sets out of the 36 created.

"So she's spending $10 per day to get this from winners, right? Per ad set. That means that she has twelve winning ad sets that are working, which means she created 36 total ad sets to get her number."

The quote explains the ad spend strategy, where the individual allocates $10 per day for each winning ad set, leading to the creation of 36 ad sets to find the 12 that are effective.

Lead Generation and Conversion

  • The individual aims for 15 sign-ups per week, selling five days a week, which requires three sign-ups per day.
  • To meet this goal, they need to sit down with about five people per day.
  • They generate 60 leads per week, which translates to an ad spend of $3,600 per month.

"So in order for her to hit her goal, what she is going need to do, right, is that if she's doing 15 sign ups per week and she signed it, and she's selling people five days a week, it means she needs three sign ups a day, which means she needs to sit down with. So divided by five, about five people a day."

The quote outlines the lead conversion process necessary to meet the weekly sign-up goal, requiring meetings with an average of five people per day to secure three sign-ups.

Time Investment in Advertisements

  • Creating 36 ads each week requires a significant time investment, estimated at 4 hours per week.

"And so if we have to break this down tactically for her, she's going to every single week, make 36 ads, which takes time. This shit takes time."

This quote emphasizes the time commitment required to create the volume of ads needed to generate sufficient leads.

Lead Management and Sales Process

  • From 60 leads per week, the individual schedules 44 appointments, with half of those resulting in 22 people showing up.
  • Of those who show, 15 close per week, but with a 10% loss, the actual number of people who start is around 13 per week.
  • Two-thirds of those who start are expected to finish, leading to approximately nine completions per week.

"She's going to get 44 of them scheduled, up to 60. Half of those people will show, which is 22 of those, half that show, she'll close 15 per week."

This quote details the funnel from lead generation to closing sales, highlighting the expected attrition at each step and the number of leads needed to meet the weekly target.

Forecasting and Goal Setting

  • Forecasting requires using real, current business data, not idealistic or exceptional past performance.
  • Adjusting scheduling and show rates can significantly change the number of leads required.

"And so you have to use the numbers that are real for your business right now. Like, what's actually happening, not what you wish has happened."

The quote advises on the importance of using accurate, current data for forecasting and setting realistic goals.

Daily Operational Requirements

  • To ensure five people show up daily, the individual needs to schedule ten appointments per day.

"She needs to have five people show up, which means she needs ten appointments per day."

This quote breaks down the daily operational needs into actionable targets, clarifying the number of appointments required to meet the individual's objectives.

Forecasting Business Metrics

  • To forecast effectively, start with real numbers and determine the logical steps required to reach the goal.
  • Consider what needs to happen for each step, such as the number of clicks needed to generate leads based on the conversion rate of a landing page.
  • Simplify the process without overcomplicating it for better understanding and application.

And so when we make back of napkin math predictions based on how many support reps we're going to need at x amount of revenue and how many applications we need to drive growth to hit this goal, this is how we break it down.

This quote explains the process of making rough calculations for business needs, such as the number of support reps needed for expected revenue or applications required for growth.

Sales Team Performance and Predictions

  • Predictions should be based on current performance levels of salespeople, not on ideal or expected outcomes.
  • To achieve a volume goal, calculate the number of salespeople needed based on their current closing rates.
  • Anticipate that systems will break with scale, and improvements will often be made to fix these issues.

Not what they should be closing, but what they're actually closing. And in order to hit this volume goal, I need this many salespeople at current level, right?

The quote emphasizes the importance of using actual sales figures to determine the number of salespeople needed to meet sales goals, rather than relying on theoretical or expected figures.

Business Growth and System Breakage

  • As a business grows, systems will inevitably break, necessitating constant repairs and adjustments.
  • What works for retaining a certain number of clients may not work for a larger client base.
  • Growth involves creating and fixing systems repeatedly, which is a natural part of business development.

The systems that you create break. And that is part of growth. Welcome to business.

This quote highlights that system failures are a common and expected part of business growth, indicating that businesses should be prepared to continuously address and fix these issues.

Overcoming Limiting Beliefs

  • Personal beliefs about one's abilities, such as being bad at math, can be based on past experiences and may not reflect true capabilities.
  • Reassessing these beliefs and tracing their origins can lead to a better understanding of one's actual skills and potential.

For the longest time, when talking about limiting beliefs, I, for most of my life, thought I was really bad at math, okay?

The speaker shares a personal anecdote about overcoming a limiting belief regarding their math skills, which is relevant to understanding how such beliefs can affect one's self-perception and performance.

Practical Math Tricks for Business

  • A useful math trick for quick calculations involves breaking down percentages into tens, fives, and ones.
  • This method can be used for calculating tips, discounts, or any percentage-based figures without needing a calculator.
  • Such tricks can improve efficiency and confidence in one's math abilities.

And so if you want to do this for yourself and have a party trick or I think it's really useful because you can get really good guesstimates in your head and not constantly have to pull the calculator out, which kind of slows your momentum down.

This quote provides a practical tip for performing quick mental math calculations, suggesting that it can be a valuable skill for both business and social settings.

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