What do I mean by the ‘wrong’ numbers? Surely all numbers are important when you’re running a business…
True, but some are not as useful to shine a light on how your business is functioning and what you can do to improve it. For example, accounts, income, bottom line profit or a particular spend line in your accounts at the end of the year, only shows what has passed and cannot be changed.
Revenue, margins, profit are all examples of ‘outcomes’. For me the real numbers are focused on the activities that drive those outcomes in a positive way and therefore you don’t have surprises at the end of the year.
I would encourage you to think about a top five of numbers in your business. Numbers that drive your effectiveness, success, and development.
To caveat that, those numbers aren’t always the same for every entrepreneur and they may change as time moves on and goals are achieved, but in my experience five at a time seems to support your focus so as not to dilute your attention away from those key performance high pay off activities that truly make a difference. Too many numbers in your dashboard and you can lose sight of the most important or get distracted by those that may not be as important to keep an eye on.
Focus on activity – not outcomes
The numbers in your year-end show you an outcome. The REAL numbers to focus on are those which relate to activity and will ultimately define your key performance indicators, having an impact on your outcomes.
Let’s look at an example of how to shift focus to the numbers that matter
Sales figures and the number of £s earned. Instead, think about what influenced those sales and in turn what activities were the drivers.
- How many customers you have, is influenced by your;
- Lead generation
- Conversion rate
- Retention rate, all of which are influenced by your;
- How often your customers buy from you, is influenced by your;
- Their perception of your business
- Whether the product or service is right
- How much they spend with you is influenced by;
- The price
- Quantity of sales, which in turn is influenced by;
- Ability to upsell
- Packaging and bundling.
What are the top five key numbers in our business to focus on?
So, using the above example, we can choose to have an impact on what influences the sales, by selecting five activities to focus on.
- Adding new contacts to your CRM database
- Gaining new referrals in a given time period
- The number of calls or meetings you arrange
- Growing your social media following
- Attending face to face events.
Tip: I often ask my clients to work backwards and consider the points at which a ‘lead’ may drop-off. For example, if you want to make X number of sales, what activity should you be doing? You can work out what percentage of phone calls become meetings, how many meetings become proposals and how many proposals become sales.
Focusing on activity also aids forecasting
If you reach the end of your measurement period, say increasing those sales by a certain number in a certain timeframe, and you haven’t achieved it, you can look back and will find one of the drivers wasn’t effective enough.
Either you didn’t grow the customers, the price was too low, or they didn’t buy as often as you’d expected. Now you CAN have an impact on the forecast for the next time period and look at the activities that influenced those drivers. Do you go to more meetings, do you make more phone calls and appointments, do you look at your pricing model?
Any conversation with my clients around forecasting their revenue will always breakdown their numbers in this way. Too often businesses guess, copy last years performance or lick a finger to the air. If you have guesstimated your forecasted revenue and don’t achieve the outcome, then what do you do next month? Work harder? Is that possible? However, with the ‘real numbers’ of influence broken down you have clarity of the change that is needed.
Learn more about the numbers that matter
This article is also available as a Snippet on my Mike Foster YouTube Channel, but we delve considerably deeper into the topic in module four of my Online Business Development Programme (OBD), where we cover the right numbers that drive your outcomes; calculating the break even point, cash cycles and the impact on the business and your cashflow; and where you see your expenditure in terms of investments or cost.
The OBD is a series of 12 video led modules that aim to help you grow your business. They can be completed in any order in your own time and the course is available for £279 (lifetime access), with the option to pay in four instalments. Take a closer look at the modules here: https://www.businessdevelopmentprogramme.co.uk/ As always, I hope this has been useful to you, if you would like to ask any questions or get clarity on any of the points within, please do get in touch.