Having clear financial goals makes it easy to evaluate marketing and staffing opportunities, weak areas, and expenses. Knowing your numbers will give you the insight and power to make decisions. In most cases we make decisions based on less information and more gut feelings. Knowing your numbers sets a clear path and alerts us when we need to change a direction or strategy. We deal with limited resources every day: Only so many hours in the day, so many employees, so much money to spend on marketing and staffing, only so many clients. Knowing your numbers will better help you:
- Refine your marketing methods,
- Be more precise in marketing
- Increase marketing efficiency and effectiveness.
- Increase productivity and
- Quickly identify weak areas that need to be improved.
Numbers that are important to track in your business are called key performance indicators (KPIs). Some KPIs / numbers to know in your business are:
- Retention rate per client,
- Current cash position? Where is your cash tied up?
- Employee/ contractor costs ( labor costs is often the highest costs in most businesses)
- Average sales per client: Total dollars divided by the number of clients
- Sales comparison reports: compare to previous months, previous years and projected amounts.
- New client count. How many new clients did you see in the most recent month and source
- Hours booked compared to hours available. This is an efficiency ratio. If you have a lot of available hours then you need to increase marketing to bring in new clients
- Gross profit percentage: This is your total sales less cost of goods sold
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Fixed expense as a percent of sales: Your fixed expenses never change, if sales are low compared to fixed expenses, then you need to look for ways to reduce fixed expenses or increase sales.
As a business owner, effectiveness is measured by assessments and key performance indicators/ knowing your numbers
All processes should interact to create the customer experience. In order to be fully functional, the following components are necessary:
- Mission, vision and values: know why you exist
- Intention and Strategy : Be intentional about carrying out your mission
- Leadership and support: Get the right people to lead the vision. You as the owner should lead by example, your employees will only go as far as you can lead them.
- Metrics and business Improvement: you should have a system of constant evaluation and improve those systems that fall below the targeted metrics.
Key questions to ask when making key decisions (these decisions should have concrete numbers to support them)
- How does this decision affect my mission/ vision?
- How will this decision affect my customer base: Will there be an increased perceived value to the customer?
- How does it affect my bottom line/ budget? Can I afford it?
- Inventory: do we currently have anything on hand that can help us towards meeting the goals of this decision
- How does it affect revenue? Is this a revenue generating decision, or is it needed to produce revenue. For example; if we do not have this do we have to cancel appointments, or is there any way we can do without it for now.
Finally, remember as a lifestyle entrepreneur, business owner, self-employed individual or contractor you need to know the state of your resources i.e. what you have and how much of it you have. This gives you a better handle of your business. Moreover, when you know your numbers, business growth does not make you feel like you are spiraling out of control. If you know your numbers, you can better identify the source of most problems that occur in your business. Once you know the source you can deal with it heads on.