fbpx

​​​​​​​​​​​​​​

If you’re serious about the success of your business then you have to keep right up to date with the most important drivers in your business, the numbers, but not just any numbers but the numbers that REALLY matter so you understand exactly what’s going on in your business.

Knowing the important numbers in your business is vital to your success. Too often it’s something we brush under the carpet until it’s too late, a great big tax bill arrives, we flitter money away on marketing that’s not giving a good return on investment or we’re blind to cash flow issues that are the most common cause of putting UK business owners out of business.

Unfortunately, most business owners don’t measure the right things, at least not the things that are really going to help them drive their business forward. That’s because they get most of their guidance from accountants, banks, and various business support organisations who have been trained to look at numbers like sales, gross and net profit, costs (usually with a view to always keeping these as low as possible), and ratios like ROCE (return on capital employed), debtor days, and liquidity. And to make matters worse many, many businesses rely on out of touch accountants to produce these figures and they only get them once a year in their annual accounts, usually several months after their year-end by when it’s just too late to react.

There are two major problems with this:-
Firstly the information is historical, it’s about the past and already way out of date.
Secondly, they’re mostly measures of outputs, in other words they are the results of all the things that go on in your business and you can’t directly influence them.
You can’t directly change your sales or profit figures, they are a consequence of the inputs, of all the variables that contribute towards the success and profitability of your business. That’s things like your marketing, selling, servicing and looking after customers and so on. These are the drivers and it’s the numbers related to these that you really need to be measuring.

Now I’m not saying you don’t need to know any of those traditional measures, but they aren’t the best measures to help you grow or run a better business because you don’t know what is driving them. As well as these historic numbers you need to know the numbers that you can control and that help you look ahead. These are the numbers that drive sales and profits and so affect your future and help get you where you want to be. You need to know what is causing sales or profits to go up or down, which bits of your marketing are working and which aren’t, where you’re strong or weak.

These numbers, the NUMBERS that Really MATTER, run your business. The most successful business owners are all over these numbers, they know them inside out.

They know that they have to understand exactly what is happening in their business right now. They have to if they are to achieve the goals they are aiming for. They know that otherwise they can’t do anything, they can’t make the right decisions and move quickly enough to make changes or grasp opportunities. And they know that the only way to understand what is happening in their business is to know their numbers.

So they have the full picture. They understand the details of what’s going on. They are clear about what they are doing and why. They don’t spend money on things that aren’t working. They take responsibility and make decisions that drive their profits. When they see their profits climb, they understand why and continue the strategies that are working. When profits fall, they understand why that is too and they move quickly to take corrective action. And because they understand their numbers, they’re always equipped to make the best decisions for their business.

So what are these all-important numbers? Here are a few of the numbers YOU REALLY NEED TO KNOW for your business. You need to know these inside out….. daily, weekly, monthly….for every product or service you sell and every marketing activity you do.

How much profit you made last week (or, at a push, last month)
Making a profit is the reason the business exists, unless you ultimately make a profit your business can’t survive. So you absolutely have to know what is happening in your business so that you’ll be able to react quickly to changes and opportunities and keep on track. If you rely on your annual accounts to tell you how you are doing it’s way too late to react.

Your gross margins
Ideally for every one of your products or services. Small changes in gross margins can have a huge effect on your bottom line and it’s critical that you understand them to avoid costly mistakes when considering prices and offers such as discounts.

What it costs you to get a new lead
Use this to get an indication of the effectiveness of your marketing, to help to identify the best places to go to get new leads and how effective your message is.

What it costs you to get a new customer
So you can make informed decisions about how you go about getting a customer and how much you’d be prepared to spend. Without it, it’s impossible to understand what pieces of marketing are working for you based on return on investment.

The return on investment of every single piece of marketing you do
Once you know what is working and what isn’t you’ll be able to focus on doing more of the things that are working best and cutting out what doesn’t work.

Your average sales transaction value
This is often one of the key ways a business can increase income and you should constantly be asking yourself what you can do to increase it.

The first 30-day value of a new customer
Along with the lifetime value of a customer, it is really important to understand this before you can start working out how much money, time, and effort you would be prepared to spend to get a new customer.

The lifetime value of a customer
By knowing what a customer is worth to you over the whole period of your relationship with them you can work out how much you would be prepared to pay to get a new one. Most business owners just look at the upfront cost rather than the bigger picture which sometimes means marketing you thought was not cost-effective actually is over the lifetime period.

How much you could afford to spend to get a new customer
Getting a new customer is a bidding process, unfortunately, most business owners try to get their customers as cheaply as they can. But the smartest ones know how much they can afford to spend up to. By spending more, when done properly they know they can often outspend their competitors and dominate their market.

How profitable each of your customers is to you
This isn’t just about what they buy, but also takes into account how much looking after they need. Not all customers are equal, some customers are undoubtedly more profitable than others. By knowing these numbers you can focus on keeping the more profitable ones and getting more like them and doing something about the unprofitable ones.

How much in sales does each piece of your marketing specifically generate
So you know how effective your marketing is and if you are just throwing money away.

Your personal hourly rate – what, as the owner, your time is really worth
So you can make good decisions about how you use your time.

Your breakeven sales figure
Knowing this is crucial to ensuring your business ultimately makes a profit.

And of course, it is crucial that you do prepare Management Accounts and Cash-flow forecasts if you are going to have an up to the minute view on the financial state of your business and ensure you’ve got the cash to keep the business going and to do the things you need to do. So the next time you’re talking with either your accountant or bookkeeper, make sure that they start preparing these numbers for you.

Hopefully, you now understand that you can’t grow a successful business without a focus on your figures. This short blog has set out some of the numbers that really do matter and I hope it has opened your eyes to ways that you can really take your business forward when you know what numbers need the most focus.

Share This