Planning for Next Year? Get a Fix on These Numbers First Figure out the metrics that drive your business and you'll zoom ahead of the competition.
Opinions expressed by Entrepreneur contributors are their own.
I saw a great line the other day in my reading and the gist of it was, "Do your homework before it's assigned."
As we wind down the year, it's never too early to get a jump-start on planning for next year. Nor is it ever too late to get a handle on some of those "homework assignments" that you may have neglected, but can have a profound and positive effect on your business. So, before you get too bogged down in the details of a new social media blitz or what you think is a great branding campaign, take time to answer some very basic questions about your current plans or the state of your start up.
- Do you know how many customers you need (or how many sales you need to make) today to make a profit?
- How about to break even?
- Do you have a systematic way to generate consistent cash flow?
- How many prospects do you need in your sales pipeline to produce enough customers to make your profit margin?
- What is your profit margin?
Get a handle on these questions, and you'll get a handle on your business. That will put you ahead of 90% of most business owners, including, I'll wager, your competition. Very simply, you can't change or manage what you don't measure, and the most profitable and highest growth companies know their numbers on every level.
The uneasy truth is that most business owners I've coached over the years have no clue what their true numbers really are. They may have a "gut feel" – but they don't really know. Why? Mainly because I think they don't want to face the reality the numbers will ultimately reveal to them. However, to really prosper in business, you're going to have to accept that the language of business IS numbers, and by mastering your numbers, you can master your business. Here's a glimpse of what you need to know.
1. Your numbers at the moment
Figure out what your sales, cash flow and profit margins look like. Then start focusing on what you can control.
What's your best selling or projected core product and can you raise its price at least 10%? Know--and do this--and you'll start to boost profit margins. Afraid you can't boost the price of your best selling product? In reality, most people won't even notice the difference. And those who do will start falling off (they are "C" and "D" type customers compared to your good "A" and "B" customers). They are price conscious and will never be happy anyway. So let them go. Chances are, they will flock to your competition, where they will haggle about price and complain about service. But don't worry. Those C's and D's are now someone else's problem, not yours. In the meantime, you can start creating "added value" in your customer service experience to keep current customers and help convert new prospects coming through your doors.
You do know how many people come through your doors each day, don't you?
And how many actually buy something? When you know this, you can start to manage the number known as your "sales conversion rate" with extra service and sales scripts to help guide your prospects through the sales process.
Plus, if you know you always convert 15 percent of prospects into a sale and you know you need 12 sales to make a profit, you can easily determine you'll need 80 people through your doors on average to be profitable. Now your question becomes something you can act on, namely "How can I get 80 people through my doors?"
2. The numbers where you want to be
Are you looking for an extra $10,000 in gross profit on a 25% profit margin? You'll need to generate revenue of at least $40,000.
Are you a professional who charges $100 an hour and now wants to double your income? You might need to determine whether it is better for you to charge $200 over 2,000 working hours a year (highly unlikely given you can't charge every working hour)–or charge $400 multiplied by 1,000 working hours a year (meaning you can take some time off once in a while). Now the questions become: Do you have the products, services or skill set to charge that amount? Can you reorient your marketing to target audiences both willing and able to pay that amount?
3. The numbers in your plan of how to get "there."
Sometimes the numbers will reveal your current skills and market conditions--or your current mix of products and services--just won't support your targets.
Maybe you want to charge $400 an hour, but discover you can't until you add another level of product or service, or more expertise to your current skill set. Or, maybe you're the newest entrant in a category with 10 seasoned competitors, and you only now discover you're all chasing after the same small pool of price-conscious customers. That's not bad news--it's just news. But it will help you determine what you need to do to improve and enhance your professional skill set or to revamp your product and services mix. The numbers might show you that you can afford to hire a great salesperson and a bookkeeper while you network or leverage your greatest skills to build your business in new and innovative ways. Could you do that if you were "in" your business 12 hours a day? Probably not. But those opportunities won't ever present themselves without a good handle on the numbers of your business.
So, do your "numbers" homework before it's assigned (meaning a cash flow, sales or leads crunch), and you'll be better prepared for the challenges that always arise. You'll also be equipped to make better decisions with information that can help guide your "gut" and "feelings" -- if you happen to be that type of decision maker.