Business Success Secret: Your Numbers
To run a successful business over the long term it is extremely important to understand the numbers. And not just any numbers but the right numbers.
Probably the most important 3 numbers (key performance indicators – kpi’s) for any business to know in planning their success is:
|· Number of customers||e.g. 5,000|
|· Number of visits (each year)||e.g. 3.2|
|· Average Transaction amount||e.g. $60.15|
In the above example you expected revenue for the year would be $962,400. This is a great starting point. Now if you are unhappy with that projection you can work those numbers up to a number you are much happier with and then work on a strategy to get from your starting point to your new outcome.
For example, if you could get the number of visits from 3.2 to 3.5 it would result in an additional $90,225 in revenue. You might do this by introducing a newsletter, direct mail drops or a loyalty scheme to encourage your loyal customers back more frequently.
Apart from knowing the 3 key numbers above and understanding their relationship on your sales there are a number of other useful numbers you should have a good understanding of:
- How many enquiries or leads you get every year?
- How many enquiries you convert into new customers?
- How to improve the number of enquiries you get?
- What is the retention rate of customers – how many do you keep, how many leave?
- How to increase your retention rate and keep your customers?
- What the lifetime value of your customers is?
- What the value of your business is?
- What your allowable acquisition cost is?
- What your cash flow is?
- What your cost of goods sold is?
- What your breakeven point is?
To ensure you are monitoring the right numbers and are able to take appropriate action when required get to know these numbers. Your accountant can certainly help you with health checks, planning sessions, budgets and cash flow forecasts as well as regular monitoring meetings.
Richard Kemp – Watts Price Accountants
The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.