Peter M. Vessenes, CEO of ProfitSee and Karen Reyburn, Founder of The Profitable Firm joined forces to discuss The 4 Numbers that Drive Your Business.
What are the four numbers that you should be paying attention to in your small to mid-size business to create a better, more profitable business?
- Conversion Rate: Understanding how many potential clients you have, and how many actually become clients, and how long it takes prospects to become paying customers is an important tool to growing your business. Knowing your conversion rates can help you prepare for the future.
Identifying “Dormant Customers” can help prevent dormant or slower moving customers from becoming “dead”. It’s all about the touches and marketing.
- Break Even, and True BreakEven™: Your Profit and Loss Statement from your accounting software doesn’t really tell you if you’re making money or not! It is not taking Aging Receivables and Payables into account. So can you use your cashflow to tell you the truth? No. If you have a loan the interest is accounted for in the P&L because it is an operating expense, but the principle on the loan does not appear in the P&L, it appears in the Balance Sheet – but it doesn’t even show up as the “Loan Principle” it just shows up as a liability! Other factors not clearly expressed in these standard statements are Owners Compensation, Aging Receivables, Aging Payables, and more. So how can you really know how your business is doing? True BreakEven™.
Also learn the 3 Ways to Increase Profits, and how Profit Sharing and Bonuses can help your business.
- Net Profit Margin: What is Net Margin? What happens with this becomes effective? The numbers that go into Net Profit Margin are: Profit, Revenue, Cost of Goods Sold, Operating Expenses, Interest, Taxes. Bright Idea Tip: Have an accountant set up for you, (or if you are an accountant, set up for your clients) a profit-marting-by-product report. It can change your business life!
- Benchmark: How do you compare to your industry? Knowing how you stack up against other companies can help you see where you can improve your business. For benchmarks to be statistically valid there has to be a large enough sample of business in your industry sector, but they assume that the middle is the average of what’s going on. What it doesn’t address is if the businesses are functioning well. When looking at benchmarks, it is importnat to remember Industry Norm does not mean Industry Excellence.