Assume for a moment that I just gave you a business and today is the eighth of the month. Monthly sales so far total $65,000.
Are you having a good month? You probably can't answer this because you don't know the details of the business. However, I've found that when I ask entrepreneurs this same question about their own business, they don't have an answer.
Let's revisit our hypothetical company once more. If sales are $65,000 on the eighth of the month, you're averaging $8,125 per day. This means you're on track to generate $243,750 in sales for the month.
Go back to your own business for a moment. Are you making this calculation on a daily basis? And if so, are you comparing this to last month's results? How about the same month last year? Are you doing better, or worse?
Most entrepreneurs don't know these details. Yet if you start to track and understand the numbers in your business, you can quickly increase your sales and profits.
Below are five ways that tracking your numbers will benefit your business:
1. Know how far you are from reaching your goals.
Scores of research prove that individuals and organizations who set goals are much more likely to achieve them. However, to achieve a goal, you must be able to properly measure your progress. By understanding how your business is doing in both revenues and profits daily, you can tell if you're on track to achieving your goals and adjust your plans as needed if you're not.
2. Pinpoint and manage key underlying issues.
There are a handful of smaller activities that effect larger results. For example, the following are often key underlying issues for sales:
- Number of outbound sales calls
- Number of live connections
- Number of proposals given
- Proposal close rate
- Average price per sale
When sales are low, most entrepreneurs don't know what to fix to see improvement. By tracking each of these numbers, you can instantly know what to fix.
3. Discover problems before it's too late.
Most entrepreneurs have a bad sales month, then look back to determine what caused it. Had the entrepreneur tracked his numbers on the underlying issues, he could have fixed the problem early on. For example, he might have learned that the number of proposals issued in the first week of the month was low, and made sure more proposals went out the door.
4. Quantify success and failure.
By understanding and tracking your numbers, you can measure whether your business is performing well. For example, if your sales team made 500 outbound calls already, your number of customer complaints is less than 10, and your average delivery time is less than seven days, you can rest assured that your business is running smoothly.
5. Offer employees more constructive feedback.
Tracking and publishing your numbers tells employees what's important. For example, if you track customer satisfaction, number of refunds, and average customer hold times, your customer service manager knows precisely how he is being judged and what to improve.
Keep in mind: Don't just look at your numbers to determine what needs fixing. Use them to pinpoint what's working well in your business and do more of that.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.
Dave Lavinsky is the co-founder of Growthink, a Los Angeles-based consulting firm that helps entrepreneurs identify and pursue new opportunities, develop business plans, raise capital and build growth strategies. He also is the author of Start at The End (Wiley, 2012).