Profit margin

You know your key business performance numbers – right?

Every business has its own particular key numbers. Mine has them. Yours has them. But do you know what they are and, if so, how are you measuring them?


Keys. (Photo credit: Bohman)

If you are seeking to build a sustainable business you must hunker down and look at the numbers. Many business owners despise the thought and try to limit any sort of financial review to the year end but in today’s economic climate this is simply too risky – if you are fortunate enough to make it to your year end, the damage to the financial health of your business by that point may be too severe. You may already be in intensive care (and not even know it)!

I was sitting down with a client of mine last week who has a handle on his numbers. He has the benefit of using an online cloud based accounting solution (Xero) that allows him to drill down into his sales and costs in realtime. This allows us to have a richer conversation about exactly where his business is now and plans for the future.

He has an online business so his key costs are marketing and the salaries of the development team. We talked about his key numbers that are:

  • Cash in the bank
  • Number of new registrations / expressions of interest / leads
  • Cost per new customer acquisition i.e. conversions
  • Organic v purchased registrations (purchased mainly comprising Google Pay Per Click)
  • Profit margins per service offered

The business is still at a relatively early stage and therefore most of the focus is on customer acquisition and developing the service and therefore this business owner’s key numbers are primarily around lead generation, conversion and then up-selling additional higher margin services.

He has been tinkering with marketing costs (the beauty of Google Pay Per Click is that you can quickly and easily turn the tap on and off) and he knows that his development team is down to its bare bones and that he needs to keep investing in his IT platform to stay ahead of the competition. By his own admission, this business has yet to get fully to grips with relative margins between service lines although we discussed an exercise to get to grips with this sooner rather than later – as he doesn’t want to find 6-12 months down the line that he’s been leaving much needed cash on the table by up-selling the ‘wrong’ services.

We discussed condensing the key business information (beyond what’s available on the Xero dashboard) onto a single page that could be reviewed at least monthly – preferably weekly.

There’s no need to be put off by fancy acronyms like KPIs (Key Performance Indicators) and financial jargon, this is your business (your future) so you need to get a handle on the performance measures that matter so that you can take quick and decisive action if and when the need arises.

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