Time to start your new year with a bit of magic – you may have not ever thought numbers were magic but keep reading and you’ll see what I mean.
At AdviCoach (the coaching organization I am part of), we use a tool called The Profit Equation to show how these 6 Magic Numbers impact the profit (cash) you take home at the end of the day, week year. And yes.. the goal of owning a business is to get cash out on a regular basis and to create a company that is steady, predictable and scaleable so that it becomes an asset that you sell or transfer to family someday so it does the same thing for the next owner.
This is an introduction to the numbers you must impact in your business to grow – we’ll be expanding on each in the weeks ahead.
The 6 Magic numbers of Your Business:
- Lead Generation – Potential customers who want the solution you are offering. This is not just any potential customer in the universe. This is someone who you could potentially reach and provide a solution for. Specifically:
- They may not know about your product or company yet
- They may know about it but not understand how you could help them
- They may want to buy but not yet
- Lead Conversion % – Potential customers who turn into buyers. Calculate this by taking # Sales / # Leads.
- Average Revenue per Customer – Does your customer spend $100 each time or $10,000? Calculate this by taking Total Sales / # of buyers (customers)
- Gross Margin (or Cost of Goods Sold) – What you spend to produce your products or services These costs vary in proportion to sales and are the “pure” costs of making your beautiful widget. Not office supplies or rent or expenses like that.
- Fixed Costs – The costs in your business that you will spend whether you sell anything or not. Examples are Rent, Utilities, Office supplies and probably some of your Salary expenses.. including yours.
- Your Happiness Factor – If you’re not happy with what you are making, achieving or life in general.. it will show up in your business. Owning a business can be lonely, frustrating and exhilarating. Talk to a friend, a coach, a counselor or your mother and figure out what needs to change first. Focus on what matters to your life and your business. In that order! You can make changes that move you in your right direction.
The Magic Numbers all work in relationships that produce your Net Income. Net income is what you keep and take home beyond your salary if you are able to collect the cash for the goods/services you have sold. (that topic is for another day)
If you do not have a positive Net Income number, you are either using up savings or increasing debt. No Net income = No Cash that belongs to you. That old expression “Cash is King” is very true if you want to stay in business.
In my next post, we will look at the Profit Equation to see how these numbers really create a magical result and even more importantly… how YOU can start making changes that grow your Net income.
If you’d like to have a quick chat about any of this, email me at firstname.lastname@example.org or use the contact form.