Well where are you right now as a starting point, how many of these do you know?
1. How much PROFIT did you make last month?
2. What’s BREAKEVEN for your business?
3. What’s your GROSS MARGIN?
4. What’s your OPERATING CASHFLOW so far this year?
5. What was your COST PER ACQUISITION last month?
6. How are you tracking against plan YTD?
Many business owners won’t know many of these and its very unlikely that you’ll hit true success, until you know and live theses 6 numbers.
As people don’t know their numbers and the amount they think they can spend to get a customer is wrong, which is then not getting the business the correct results, as the maths are all wrong.
Here is some detail on the above figures you should be monitoring and reviewing on a regular basis:
• Breakeven – This is the number sales required to cover all your fixed and variable costs. (Fixed costs are constant regardless of sales and variable costs are the items that are needed to do more sales. Marketing should be included as a variable costs as to sell more, extra is required).
What’s great is that once you move beyond breakeven, all your gross margin flows through to profit.
• Gross Margin – This is the most important number in your business. This is the Percentage of every sale that contributes towards your overheads and profit. Gross margin should include any cost that you’ll need more of in order to sell more, which normally includes marketing. Your Gross margin matters because once you get beyond breakeven all of your gross margin flows to the bottom line.
• Operating Cashflow – This is the amount of cashflow your business generates or consumes from normal operations on a monthly basis. Cash is King – i.e. the cashflow of the business is vital for its survival regardless of profit level. Consideration may need to be given Into transferring money into a separate account ready for VAT or Taxation purposes, to enable the cashflow to be there for bill payment dates, by transferring money every month on the 1st for example.
• Cost per Acquisition – this is the amount you pay to get a new customer. It includes all external marketing costs but wouldn’t normally include sale people, But includes all google, pay per clip, Facebook ads etc.
Don’t be tempted to set this too low as getting cheap clients is a big mistake and not generate the income you require. By changing strategy and getting their economics right they can buy speed, growth and discourage competition from entering the market.
If you would like some help or clarification on understanding your numbers please don’t hesitate to contact me. As a chartered accountant I can provide you with monthly figures and make you aware of the various numbers and help you understand the figures behind your business growth. And help you get on track towards growing your business. I also have a marketing spend calculator available as a download so please email for a copy to be sent over.