Here’s the illusion…
Let’s say I invest $1000 into 100 units at a 50% ROI and I only sell through 80% of those units in 30 days…
Simple math shows that I would get my $1000 back plus $200 profit after 30 days and then the rest of the unit sales are all gravy. I’ll make $500 profit after all is said and done.
The point of this blog post is to show you that this “profit” of $500 is only an illusion.
The popular way to view the math goes as follows:
I made a profit of $500 on that $1000. I got all my money back plus and additional $500. Woo Hoo! I’ll keep doing this until the cows come home. Rinse and repeat. No more thought about it. And I’m sure this is the way most sellers operate.
This is the way it really works when you lift the veil of illusion:
After 3 months of repeating this type of thinking/strategy (sourcing at 50% ROI and selling through 80% each 30 days) I get back $1900 from my initial $1000 investment. I’m not keeping pace with the ROI I’m sourcing at and I’m actually losing a TON of money in the process.
How’s it possible to lose money when I made $900 in profit over 90 days (30% overall growth per month)?
- When I fail to reinvest 100% of my capital at least 2x each 30 days (for 3 months) then this is how much money my business will lose after just 3 months: $2,256.25
- When I fail to reinvest 100% of my capital at least 3x each 30 days (for 3 months) then this is how much money my business will lose after just 3 months: $8,084.90
- When I fail to reinvest 100% of my capital at least 4x each 30 days (for 3 months) then this is how much money my business will lose after just 3 months: $23,849.27
So while I’m cheering my $900 gain other sellers are claiming between $2,256.25 and $23,849.27 of money that “should have been mine”!
Hey look, I understand, It’s easy to stick your head in the sand and pretend that mathematical realities like this don’t really exist (I did it for years). And believe me, the Low Baller’s out there hope it remains that way. I really don’t blame myself or anyone else for this ignorance. Nobody was teaching this stuff and since nobody stepped up to the plate to shed some real light on this subject I figured I would do this service for the community myself.
I at least want to plant a seed in the minds of my readers so they can make more educated choices when it comes to their business
Since some of you are visual learners, here’s a quick video to show you what I just said above:
Okay, okay, so maybe you don’t have enough SKUs to roll your capital onto to reinvest 100% of your capital at least 2, 3 or 4 times a month so let’s play the numbers based on reinvesting only 80% of your capital 2, 3 and 4 times each 30 days for 3 months.
- When I fail to reinvest 80% of my capital 2x each 30 days (for 3 months) then this is how much money my business will lose after just 3 months: $951.81
- When I fail to reinvest 80% of my capital 3x each 30 days (for 3 months) then this is how much money my business will lose after just 3 months: $3,582.95
- When I fail to reinvest 80% of my capital 4x each 30 days (for 3 months) then this is how much money my business will lose after just 3 months: $9,478.78
Any way you slice it, failing to reinvest your capital multiple times (at least twice) in 30 days leads to loss despite the appearance (illusion) of gain. Yes, it’s an illusion and a very popular one at that. It’s so popular in fact that nobody talks about it.
I wrote a short book on this subject called “The Low Baller’s Guide to the Galaxy” in case you may want to dig a bit deeper. (see my other books and courses here)
I would appreciate all questions, comments and concerns below…
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