Are you regularly checking your business’ vital signs?
See, to me, there are a few key numbers in your business. They act as an impartial, unbiased review of what’s going on in your business. They can tell you if there are problems, unmet quota, faulty systems and more.
They are, in essence, the vital signs – such as the heartbeat – of your business.
Today, I’d like to go over a few of these key numbers. Allowing you to get into the heart of your business and see just how well it’s actually beating. As well as potentially highlighting some issues that may be holding your business back.
What’s more, you don’t even have to be an accountant to make use of these numbers. Pretty exciting, right? So, without further ado, let’s get into these numbers and how to monitor them.
1, 2 and 3. Revenue, Gross Profit Margin and Net Profit Goals.
The reality is, most businesses have clear revenue goals.
However, they’re not always great at keeping track of gross profit margin or net profit goals. Which is like checking for a pulse without checking for breathing. They go hand-in-hand. The success of revenue, margin and net profit goals are all intertwined.
- Revenue: Your business income
- Gross Profit: Revenue – COGS
- Gross Profit Margin: Gross Profit / Revenue = rate of return
- Net Profit: Gross Profit – Overhead / SGA Costs
You probably already knew that, but it’s necessary to secure our foundations before we can confidently set goals related to these basics. With that done, let’s take a look at how these fundamental numbers can become a way to instantly evaluate your business’ success.
The overview looks like this:
1. Set your targeted revenue.
- This is pretty simple, and most people already have one of these. Set a goal that is a stretch, but also that is achievable.
2. Set your gross profit margin goal.
- Setting a“margin” or your % rate of return goal allows you to set a standard against which to evaluate the efficiency of your operations.
3. Set your net profit goal.
- What do you want your business to actually be making? If you’re a small business, this is your paycheck.
4. Every month, review your profit and loss statement against these goals.
- Were you close? Far off? Meeting them? Exceeding them? This analysis helps to understand what areas of your profitability is falling short.
5. On a monthly, quarterly and yearly basis, review for any trends in these numbers.
It sounds simple because it is. Numbers tell a story. Numbers in relationship to your goals tell and even clearer story.
Checking in on these numbers regularly will, undoubtedly, enable you to grow your business in a more strategic way. Clarity, provided by looking at your results and analyzing what they tell you, is what enables you to make confident, smart business decisions.
Already setting these goals and tracking your results? Great. Keep reading though, there’s more in store for you.
4 and 5. Dollar Amount Bid and Targeted Close Rate Goals.
With clarity on how much you want your business to be earning, you can get serious about it.
This leads us to the dollar amount bid and targeted close rate goals. So, let’s briefly review what these two numbers are and what part they play in our business:
- Dollar Amount Bid: The dollar amount of estimates you produce.
- Targeted Close Rate: How many contracts you sign vs the amount amount you bid.
Simple enough so far, right? (See, I told you these numbers aren’t that hard.)
Now, you’re probably wondering how we get these goals. They’re not as simple as how much money you want your business to be earning, after all. They’re intricate, complicated numbers that only some math wizard could determine… aren’t they?
Wrong! In case you’ve not realized it yet, I have a simple way for all your number needs:
1. Make a note of your Revenue Goal.
Say $100,000 for example.
2. Take your Targeted Close Rate.
Say 50% for example.
3. Convert your Targeted Close Rate to a decimal.
For example, 50% = 0.5.
4. Divide your Revenue Goal by your Targeted Close Rate decimal.
$100,000 / 0.5 = $200,000
5. This is your Dollar Bid Amount.
If it’s too high, you need to increase your Targeted Close Rate!
Quickly, you can see how straightforward this all becomes. Even without experience in accounting, math wizardry and the like. You can make use of these numbers to understand the heartbeat of your business and where it’s going arrhythmic. As well as how to correct it.
Also, much like your body’s vital signs, your business’ vital signs are all connected.
For example, having bidding and close rate goals actually improves the likelihood of meeting your revenue goals. It gives you tangible goal lines to improve your business revenue. Then, by meeting your revenue goals, you increase the likelihood of meeting your profit goals!
Once you throw tracking of these goals into the mix, your business evolves to the next level.
Not only are you then capable of making decisive, actionable moves to grow your business… But your team is as well. These numbers serve as a means to give them a framework for them to have an impact on the business’ success, in a measurable way!
This all starts with a quick and simple check-up. Use this simple to use guide to evaluate your numbers to help you determine the financial health of your business: A How to Read Financial Statements
If you’ve enjoyed what you’ve read here (and hopefully learned something), you’re probably going to enjoy my upcoming book too, “The Profit Bleed: How managing margin can save your contracting business” is all about the concepts I’ve talked about above (and more)
As always, if you have any questions or comments to add on the topic – please drop a comment below or feel free to reach out to me on social media. I’m happy to help and very interested to hear how others get on with implementing these tools into their business.