Client Financed Acquisition for pricing your offer

A couple years back, Alex Hormozi put out one of the simplest pricing strategies that I’ve seen consistently work for early stage companies. He calls it “Client Financed Acquisition” and it fits perfectly with our customer funded startup mentality. I don’t hear people talking about it much, so let’s dive into it.

→ Alex’s full video is on YouTube here.

Introducing Client Financed Acquisition (CFA)

Client Financed Acquisition is a method by which you get your customers to finance all your marketing and acquisition costs. This strategy allows you to plug into the universe's money rather than your own, creating a cash flow system that fulfills your needs while growing your business. The crucial part is achieving a "negative acquisition cost," where you make money acquiring customers.

Here’s the fundamental equation you need to grasp:

30-Day Cash Must be Greater than 2 Times (Cost of Acquisition + Cost of Fulfillment)

I’ve been accidentally calling it the “Unlimited Growth Formula” and I’m going to stick to it. Let’s break down the Unlimited Growth Formula in simpler terms:

Cost of Acquisition includes all marketing expenses, team salaries, commissions, and advertising costs.

Cost of Fulfillment covers the expenses required to deliver your product or service.

For example, imagine it costs you $100 to acquire a customer and another $100 to fulfill their order. That's $200 in total expenses. To achieve a negative acquisition cost, your 30-day cash (money collected from customers within the first 30 days of entering your world) must be greater than $400.

Unlimited Funding

The magic of this equation lies in its simplicity. Credit cards typically offer 30 days of interest-free financing. By using credit cards to cover your $200 expenses, you provide yourself a 30-day window to convert your new customer into $400 in revenue. Not only do you break even, but you also generate an extra $200, which can then be reinvested into acquiring another customer. This cycle allows for exponential growth without using your own capital.

To make CFA work, your 30-day cash must cover your acquisition and fulfillment costs at least twice over. This method works for any business. The more profitable your model, the better. For instance, if you can collect ten times the cost, you can grow exponentially faster.

Implications for various business models

It might be obvious how this would work if you have a physical product with clear costs to produce or a services company with clear labor costs. It might not be so obvious to you if you have a software company. 

If you’re a first time software founder, you probably don’t know all of the costs that go into creating software. There’s labor costs, there’s scaling infrastructure costs, and a cost to maintain the software. It’s difficult to say exactly how much each user costs you from a fulfillment perspective. For that reason, you should consider applying a multiplier to whatever number you land on for fulfillment costs. 

What do you think of this? What considerations are missing from the Unlimited Growth Formula or the concept of Client Financed Acquisition? I have found it greatly simplifies early decision making on price and greatly reduces the stress of acquiring early customers because you know each one affords you more customers in the future.