As Marcus Lemonis, the businessman and star of The Profit says, “If you don’t know your numbers, you don’t know your business.” Today, you will begin to know your business better.
The Small business Administration states that only about 50% of small businesses make it to their fifth anniversary. There are several reasons for this, but one of the most common is that the owners do not know their numbers. Over the next three articles, I will dive into some of the critical metrics you should know, in detail, so that you’re not on the wrong side of that 50% that doesn’t survive.
Over the last 12 years, I’ve consulted with a wide variety of organizations from solo entrepreneurs of professional services companies to Fortune 250 international conglomerates and have seen that even some leaders from larger enterprises are often lacking, when it comes to knowing their numbers and managing by them.
Let me first offer this disclaimer: I am not an accountant and this is not financial advice. My more than 25 years of experience are in sales management, revenue growth and executive leadership development. However, we will explore some initial key numbers you should know to improve your profitability.
STRATEGIC PLANS AND FORECASTS
Before we conduct an analysis of the numbers, we should first look at where they come from. It is highly recommended that every organization have a 1-year and 3-year strategic plan with realistic, and well-thought-out, revenue forecasts.
You should measure the results of all key performance indicators against the forecasts every week, month, quarter and year. In most businesses, daily tracking is also very useful. Now, let’s examine some of those key metrics.
CLOSING RATIO
One of the most valuable ways to measure and boost your sales revenue is to know your closing ratios. No matter what your product, or service, is you should know this number for each salesperson and sales team. To calculate this number, just divide the number of customer presentations by the number of closed sales. If you close one sale for every five presentations, the closing ratio is 20%. Understanding this helps you manage and ensure the effectiveness of your sales organization and improves revenue forecasting.
Once you have the ratio, research how your company compares to the industry average. How do you compare to your top three competitors? Has it improved or declined over last month? Last quarter? How can you improve it?
Next time, we’ll review additional key metrics that can substantially improve profitability.
You can download a free sales audit that will help you make a detailed, and comprehensive, analysis of the numbers that drive your sales results. Get this effective tool by visiting bradleycoaching.com.
G. Deon Bradley is a national business consultant and certified executive leadership coach. He is one of only 10% of certified coaches in North America. For information or a free 90-minute executive strategy session, email him at
[email protected].
