Know your numbers! This is one of the top five rules in business, if not the first, and yet so many business owners and CEOs are unaware of their numbers. A large percentage of businesses operate from the cash balance in their bank account or wait until they have to give their accountant their financial statements after the year ends to do their tax return. Some have their numbers available but they’re looking at the wrong ones, if they’re looking at them at all. Much of this comes from the unknown, fear of what they’ll see, or a lack of understanding.
The problem is, when you don’t know your numbers at all times, you’re most likely not only losing money, but also opportunities!
One might misinterpret knowing your numbers as knowing your sales, but that’s not the case. Just because you have sales coming in the door doesn’t mean you’re making profits. If one of the reasons you’re in business is to make money, and I believe it has to be, then you need to make sure you’re operating at the highest profit you can so you need to know more than your top line sales figures.
Knowing your numbers identifies things you should be focusing on to improve your business, it creates accountability for both you and your team, and it leads to growth for your company.
Have you ever tried to obtain a loan or recruit an investor into your business? I can guarantee if you don’t know your numbers they won’t even talk to you. Numbers don’t lie! A savvy business person can see where the strengths and weaknesses are within your company when they review your numbers. You want to know these numbers and understand the story they’re telling.
Some of the numbers you want to know include:
The client/customer acquisition cost: How much does it cost you to get a client or customer? This number should include the direct marketing costs (design, ad placement, tools, etc), the employee/contractor cost for time spent, hidden costs of freebies, etc.
Profit Margins: An example is your gross profit margins, e.g. the percentage of profit made on your product or service / your gross sales figure for that product or service. Using a restaurant as an example you want to understand the costs of the ingredients going into each dish you serve in order to calculate the profit margin made on that particular dish.
Overhead Expenses: Don’t only look at how much you’re spending, but what you’re spending your money on and if the expenses are working for you.
Client/Customer Lifetime Value: How long does a client or customer stay with you? Over that time, how much can you expect to earn from them? Here’s an easy formula for calculating this number:
(Average value of a sale) x (Number of Repeat Sales) x (Average Retention Time in Months or Years)
It’s all a numbers game so do you know your numbers? Do you understand what they mean? Don’t go it alone; get some support to create the business and cash strategies to get what you want out of your business. This combined with getting clarity on where you really want to go and building the roadmap to get there will create your company’s ultimate success.
Are you ready to get off the hamster wheel and eliminate the overwhelm? Get your free breakthrough session today and learn how you can 3x your profits.