Payback period equals PPD. How fast do you make your money back? If you think of what a business is,

it's a box where you get a much higher return than the stock market on far less money. What makes

business valuable is they are able to get 5x, 10x, 20x returns in a matter of weeks or months compared

to 10% returns over years. Payback period equals the time it takes to break even on what you spent to get a new

customer. Example, you make $50 per month in gross profit from a customer. You pay $100 to acquire that

customer. You get your first payment day one, so you get $50 to your original $100 back. Then you get your

second payment on day 31 to get the remaining $50 your hundred back. Therefore, your payback period

is 31 days. I'll be using a hypothetical business, a lemonade stand, throughout this section,

to illustrate the concepts and frameworks, and to make acquisition models fun and accessible.

Most importantly, I'm doing this to illustrate that these models work with all businesses,

including yours, whatever that might be. So let's start a lemonade stand. All right, here we are. We've got a fledgling

lemonade business. We've got aspirations to become the citrus kings of a lemonade empire. But do we have

the skills to do it yet? Let's say we start with a recurring lemonade model. And let's say for simplicity

sake, whether we charge $10 per month per customer. And let's say our average customer stays five

months for a total of $50 of lifetime revenue. Note, add or remove zeros as desired. This could be a $10,000 per month and $50,000 of lifetime value, depending on the product, business, or prices you aspire to. The concepts remain the same. Now, let's say we run 80% gross profit margins. In this hypothetical business, we might pay $2 per month to fulfill

these $10 per month lemonade shipments for us, which would be delivery costs, lemonade powder,

filtered water, et cetera. So $10 minus $2 equals $8 in gross profit. That's an 80% gross margin.

That means of the $50 we make, 40 of that is gross profit, aka it goes back towards paying

or other costs, like paying

off the quarter neighbor to use their lawn, keeping track of our accounting, and making

a profit for us, the owners. In this example, as the average customer buys lemonade for five months,

our LTGP is $250. Knowing only how much we make, LDGP, it would be impossible for us to know if

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