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GOLD! HOW TO: Understand Fastlane Business Mathematics

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Eskil

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Hey everyone,
One of my favorite chapters of the TMF book, is Chapter 37, titled “Give Your Road a Destination”.
It really made me think about the amazing possibilities that can be accomplished once you have a rock-solid business (following the CENTS commandments of course). But one thing I see some people struggle with - is the mathematics of business viability. This is often obvious when you look at people pitching their product on tv shows like Shark Tank. They may have a great product - but they suck at their own business math!

I’ve always been a fan of doing numbers, and this really inspired me to try to visualize what MJ is talking about into a spreadsheet. MJ’s brilliant “two-flanked” attack strategy is a genius way to reach your lifestyle goal in only a matter of a few years.

While you are working away hard on growing out your business, this strategy simultaneously funds your Money System – while you are gradually getting closer to the lifestyle you want. Then when you can finally liquidate your Business System, you can “cash out” and enjoy your well-deserved retirement.

I have created a spreadsheet for you all to download, where you can enter in variables that suits you, your lifestyle goals, and business variables. Your destination and time frame is affected to varying degrees by the following most important factors:



  • How soon you get started. Remember: the best time to start is…NOW
  • The monthly growth you are able to achieve. (through marketing, product expansion, upsells, continuity, etc)
  • Your lifestyle goals. Naturally, the more lavish you want to live – the harder you’re gonna have to work for that to happen. But that’s ok.
  • Money System yield. It’s probably better to assume a lower-yield of around 5-6% to be safe but play around with higher numbers if you’re a risk-taker.

Below is a screenshot of what my spreadsheet looks like. It attempts to give you a rough idea of how long it will take you to reach your desired lifestyle, and what you must strive to create in order to get there. All the white boxes are fields where you can change the variables for the calculation.

You can download this spreadsheet by clicking here.


I also wanted to share a simple formula that will calculate your estimated profits at a given point in time after starting your business. This can be useful if you want to get an idea of how much money a business idea might make you after a certain amount of time – based on how much you make in your first month, and fast it is growing.
This is an ESTIMATE – and takes into account the following variables:

  • 1stMonthProfit
  • MonthlyGrowth (a percentage, but for calculation should be specified as 1.05 if the growth is 5%)
  • MonthsInBusiness

Your estimated profits after a given number of months, is expressed by the formula:

So for instance, let’s say that you are considering going into a certain niche. After doing some research, you find that the business should be viable with some moderate effort.
You figure you should definitely be able to sell 6 units per day to begin with - and that the market is willing to pay a price that gives you $50 profit per unit sold.
Your 1st month in business should bring in approximately 30 days x $50 x 6 = $9000 in profits from units sold.
Now let’s assume you figure that your monthly expenses that take away from this are roughly $3000 (overhead, advertising, rent, whatever, etc.)

So your gross 1stMonthProfit = $6000

You also talked to a friend who is running a similar business, and find out that with the moderate marketing he is doing – you should also be able to grow at roughly the same rate he is doing (or better). It estimated that you too can increase the business with about 10% each month.

MonthlyGrowth = 1.10 (the same as 10%)

So - what kinds of profits will this business be making 6 months, 12 months, or even 24 months going into it?
Let's see...

I hope my explanations and everything here makes sense. But if you have any feedback or comments to this - or have suggestions to things I could add to the spreadsheet, I would love to hear them! :)

Eskil
 

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NaPal

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great spreadsheet. Downloaded !
 

2KidsinUT

Contributor
Aug 2, 2012
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Utah
When it comes to business, I like simple math. For instance, I have a product to sell for $50, if I sell it 1,000 times I'll make $50,000... if I sell it 10,000 times I'll make $500,000. In a world of 7 Billion people, if I can't sell it 1,000 times I'm clearly doing something wrong. And once I've sold it 1000 times, there's absolutely no reason I can't sell it 10,000 times. It's all in the numbers and the numbers don't lie.
 

Guest682

Contributor
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Jul 29, 2012
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Im horrible at math but this spreadsheet nullifies that excuse. Thank you for putting this together I'll post mine as soon as I'm finished, im following you on twitter hope to see more stuff like this. I am surprised why this thread isn't more popular.
 

bukavu

New Contributor
Oct 7, 2012
17
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Hey everyone,
One of my favorite chapters of the TMF book, is Chapter 37, titled “Give Your Road a Destinationâ€.
It really made me think about the amazing possibilities that can be accomplished once you have a rock-solid business (following the CENTS commandments of course). But one thing I see some people struggle with - is the mathematics of business viability. This is often obvious when you look at people pitching their product on tv shows like Shark Tank. They may have a great product - but they suck at their own business math!

I’ve always been a fan of doing numbers, and this really inspired me to try to visualize what MJ is talking about into a spreadsheet. MJ’s brilliant “two-flanked†attack strategy is a genius way to reach your lifestyle goal in only a matter of a few years.

While you are working away hard on growing out your business, this strategy simultaneously funds your Money System – while you are gradually getting closer to the lifestyle you want. Then when you can finally liquidate your Business System, you can “cash out†and enjoy your well-deserved retirement.

I have created a spreadsheet for you all to download, where you can enter in variables that suits you, your lifestyle goals, and business variables. Your destination and time frame is affected to varying degrees by the following most important factors:



  • How soon you get started. Remember: the best time to start is…NOW
  • The monthly growth you are able to achieve. (through marketing, product expansion, upsells, continuity, etc)
  • Your lifestyle goals. Naturally, the more lavish you want to live – the harder you’re gonna have to work for that to happen. But that’s ok.
  • Money System yield. It’s probably better to assume a lower-yield of around 5-6% to be safe but play around with higher numbers if you’re a risk-taker.

Below is a screenshot of what my spreadsheet looks like. It attempts to give you a rough idea of how long it will take you to reach your desired lifestyle, and what you must strive to create in order to get there. All the white boxes are fields where you can change the variables for the calculation.

You can download this spreadsheet by clicking here.



I also wanted to share a simple formula that will calculate your estimated profits at a given point in time after starting your business. This can be useful if you want to get an idea of how much money a business idea might make you after a certain amount of time – based on how much you make in your first month, and fast it is growing.
This is an ESTIMATE – and takes into account the following variables:

  • 1stMonthProfit
  • MonthlyGrowth (a percentage, but for calculation should be specified as 1.05 if the growth is 5%)
  • MonthsInBusiness

Your estimated profits after a given number of months, is expressed by the formula:

So for instance, let’s say that you are considering going into a certain niche. After doing some research, you find that the business should be viable with some moderate effort.
You figure you should definitely be able to sell 6 units per day to begin with - and that the market is willing to pay a price that gives you $50 profit per unit sold.
Your 1st month in business should bring in approximately 30 days x $50 x 6 = $9000 in profits from units sold.
Now let’s assume you figure that your monthly expenses that take away from this are roughly $3000 (overhead, advertising, rent, whatever, etc.)

So your gross 1stMonthProfit = $6000

You also talked to a friend who is running a similar business, and find out that with the moderate marketing he is doing – you should also be able to grow at roughly the same rate he is doing (or better). It estimated that you too can increase the business with about 10% each month.

MonthlyGrowth = 1.10 (the same as 10%)

So - what kinds of profits will this business be making 6 months, 12 months, or even 24 months going into it?
Let's see...



I hope my explanations and everything here makes sense. But if you have any feedback or comments to this - or have suggestions to things I could add to the spreadsheet, I would love to hear them! :)

Eskil

I love it, will definatly download ...
 

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truesouth

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If LamboMP had not responded here I think I would never have found this topic.

Why always the best things in life seem to be hidden when they are actually under our noses?

Eskil, I really have great respect for you, and this is a great contribution you've made. Thank you very much for taking some of your valuable time to share this with all of us.
 

Eskil

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Thank you for the kind words, truesouth and LamboMP. I have the thread linked in my signature too if you need to find it again :)
 

MJ DeMarco

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Great post Eskil, almost missed it myself. When I wrote this portion of TMF, I was doubtful anyone would actually read it and understand the mathematics. Glad YOU did!
 

Eskil

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MJ; Coming from you - I can't think of a bigger compliment! :)

By the way - if you want to use my spreadsheet as a basis for anything on your blog or TMF book site, you are of course more than welcome to. You can take out my name entirely and modify it as you please, since the calculations are yours - I just made them accessible for people to play with.
 

TheCountess

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Great spreadsheet! Really useful for visual people like me. Very quickly puts numbers into perspective. Loved it!
 

PopEmersen

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Great post Eskil, almost missed it myself. When I wrote this portion of TMF, I was doubtful anyone would actually read it and understand the mathematics. Glad YOU did!

That section was actually one of the eye opening sections of the book. It really puts a goal out there to look forward to and it was a great teaching moment for me.
 

Eskil

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How could you apply this model to a subscription/recurring customer model?

It's all pretty much the same, except in that case - your growth would be calculated a bit differently, based on customer retention. When I find some time, I will try to update the spreadsheet with this.
 

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timmy

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Magic Eskil ............Even I can understand this calculation. Thank you sir very much.
 

Jab

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Just found this after following your supplement business thread for a while, Eskil - thank you, this is excellent!
 

smarty

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Bosstradamus

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whoally crap! what a gem... thank you i was thinking excel would b a great way to organize my goals since its how i breakdown my sales goals for my current slow lane job now i dont have to make one from scratch . much obliged
 

Bosstradamus

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a few questions about this same chapter. don't know if anyone can answer em

Q1: Why divide gross living cost by 60%? In other words what taxes is he talking about and where did 60% come from?Q2: Why divide net living cost by 5%? How was 5% determined as the minimum yield of the money system?Q3: Why multiply the gross living cost by 5? Why not multiply the net living cost?Apologies for the newbish questions. I feel like chaptor 37 and these equations are of the utmost importance and just want a better understanding
 

GravyBoat

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Bump for awesome post. I was intrigued by Eskil's signature, as I've always enjoyed and appreciated the mathematics behind things. It brought me here, and now I'm glad I clicked! Everyone should be searching through more of Eskil's posts, he has some serious wisdom to share (from what I've read already)! Rep transferred!
 

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