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Whether I’m coaching clients, talking to business owners around town or teaching new ActionCOACH franchisees, one of the messages that I preach about business is that at the end of the day, business is just one big math game. And like any game worth playing, you have to keep score. Without adequate scorekeeping, you never really know how your business is really doing. As the title of this article states, you need to know 3 sets of numbers: your past numbers, your current numbers, and your planned/projected future numbers (your goals).
When I’m looking at a business I typically look at three sets of numbers in each of those timeframes. First I look at the financial numbers: your budgets, profit/loss statements, balance sheets, and cashflow statements. Second, I look at your Sales and Marketing numbers: how many leads (and from where), your conversion rates from leads to sales, your repeat business numbers, your average sale amount and then your margins. Third, I look at your operational numbers, which can range widely depending on your industry. Let’s take a little deeper dive into each of these three areas.
Financial numbers are where I always start, as without control of the numbers it is difficult to make great decisions in the other areas of the business. I call this Money Mastery, and there are several areas to master. Budgets, more specifically Profit-based Budgets are necessary in any well-run business. Too many companies budget for sales and expenses, and accept whatever is leftover as the profit. I prefer to budget for Profit first, then figure out what level of sales I need to cover the expenses required to operate at that level. What really makes this work is then comparing actual results to the budget every month and learning where my sales and operations need to improve (not lower profit expectations). Another financial number all business owners need to know and understand is your monthly (or sometimes weekly) profit break-even, or the sales required to achieve my profit target each week or month or other timeframe. A good business owner knows how to read their financials and when they get more complex, hires a great financial team to help interpret them correctly and make decisions based on the results.
Sales and Marketing numbers are simpler and very powerful, yet too many companies ignore them. Just like business, your Sales/Marketing is also just a big math game. You need to know the numbers to succeed consistently over time. Simple numbers like the number of leads and where they came from (which marketing worked), then which lead sources produced the highest conversion rate to customer. We need to know how many times our average customer does business with us, and how much they spend on average. Then we need to know our margins – gross, net, and in some industries operating – so we can make proper adjustments in pricing and therefore profits. If you have a sales team, you probably need to know some of these numbers per salesperson to identify strengths and opportunities within your salesforce.
The last area of numbers to know relate to your Operations. Depending on what you produce or sell, there will be different operational metrics that you will need to know that will be leading (or sometimes lagging) indicators of future success. If you aren’t sure what you should be measuring for your industry, your coach can help you figure that out. Other sources are industry publications, your CPA and a simple Google search. Working with your coach can help make sure you pick the right ones to match your goals and direction for your business. Be careful with benchmarks, as they often contain mutually exclusive metrics – you can’t actually achieve all of the numbers because being strong in one area may mean you will be weak in another, and that is okay. Chasing benchmarks can be dangerous, as they are often out of context with your business plans and personal goals. I recommend looking at them once to identify areas where you may be lagging or ahead, then benchmarking your performance against yourself every year – past, present, and future.
If you find yourself thinking “wow, that’s a lot of math!”, you are right, but like I said, business is just one big math game. If you need help deciphering all the numbers, give me a shout on our Take Action Page and schedule a 30 minute session to take a look under the hood at your numbers.
Author: Mark Mcnulty, Business Coach in Louisville, KY