On the Mats: Business Is a Numbers Game
Do you know what your key numbers are in your business? Let’s go find out.
Hi all, Nathan McDonald here for another excellent On the Mats episode, and today I’m going to knock you out of the park with Knowing Your Numbers. Now, I want you to do this: go into Google and say ‘know your numbers’ – and you know what’s going to come up? There’s going to be a whole heap of articles about your health – knowing your healthy numbers in your body in terms of waist size, weight size, BMI indexes, and knowing your numbers for your health. Well, guys, what are your health numbers for your business? And do you know them, and do you check them? And this morning with clients I went through our normal Monday Motivation session – just for clients only – and I asked the question, ‘Right…who actually checks their numbers at least once a month?’ What are their numbers? Do they check them? And you know what the response was? Twenty percent of people actually went ‘Yes’ – they checked their numbers, which, in turn, gave me a good kick in the ass to say I need to be chasing them up more on those. But on the flip side, it was pretty scary to know that they’re not checking their numbers, knowing where they’re actually at.
So what does that mean? What numbers should you know in business? Well, I’m going to give you five key drivers that you should be looking at in your business, but there are going to be probably so many more, and it’s very important that you actually start tracking them.
[Number 1] And the first number that you need to know is Break Evens. How much does it cost for you to run your business on a daily basis, on a – even an hourly basis, a daily basis, a weekly basis, an every 2 week basis, a monthly basis, a yearly basis, a quarterly basis? What is your Break Even figure? So, if you added up all your expenses that you have to pay – your draw if you make sales, if you go and add up all your loan repayments, or your salary that you want to pay yourself or your drawings – if you add up all your capital expenses – so you might have to buy new machinery or new computers coming up in the next 12 months. You add all of them up together and then that will actually tell you what your Break Even figures are. That’s what you have to actually survive on before you’ve got your cost of goods to actually survive in your business. And that’s one of the first key drivers that I get everyone to do here at Black Belt Business, because it is so critical that that gets done. Because once you know that, you can now go set sales targets and give the team sales targets and give yourself sales targets. You can then break that figure down into how many: patients – if you’re in the medical – that you need through the door, what your average dollar sale is, how many units you need to sell, how many hours that you need to actually go out and invoice. The Break Evens are very, very important to actually know.
[Number 2] The second one that you really need to know is your Maximum Earning Capacity. How much money can you actually literally bring into your business, maximum? With all the team that you might have or all of the products that you’ve actually got and can sell, how much does that add up to on a daily basis, monthly basis, and all of that? What you would actually use the maximum for is to make sure it’s more than the Break Evens. But, what you can also do is go, ‘Well, what are you currently doing?’ If your maximum is $10,000 a week, but you’re currently bringing in $5,000, what is happening with the rest of that 50% of productivity or product or anything to that effect? Why aren’t you near the maximum earning capacity? What needs to change in your business to actually get there? And that is a very very good driver to actually have a look at, and one of the numbers that you actually need to look at.
[Number 3] The next one is your Cost of Goods Percentage or Cost of Sales Percentage, and this could also include your productivity hours – if you’re just in a service industry, adding that in there. What – how much does it actually cost for you to sell that item? And this is very important to have a look at that because you want to try and decrease your Cost of Goods Percentage as much as you can to get the maximum earning capacity. So definitely have a look at your Cost of Goods, check it regularly, and then work out strategies to actually decrease that all the time.
[Number 4] Number four is your Productivity Hours. This is one that you could do if you’re a sole trader or if it’s just yourself in the business or whether you’ve got a mass team: having a look at what your productivity hours currently are. And I suggest that no one can work at 100% productivity throughout the day; they need toilet breaks, lunch breaks, coffee breaks and all of that type of stuff. They’re going to answer phone calls; they’re going to be going into meetings. But if you can get your team working at 85% and tracking how you get it to 85%, it will make a massive difference for your business because there’s going to be way more productivity happening. Now, working with a client on this one, we worked out that their Productivity for every – on average, their employees – was 40%. That was it, and they were wondering why they weren’t making any money. As soon as we increased that to 60% over the first month – and we did that by actually tracking their work and seeing what they’re actually doing using project management software – all of a sudden, they actually started to make more money and since then they’ve been hitting budget every single time. And that was just a 20% increase in productivity. We are now working on strategies to move it to 85%. So make sure you know your productivity hours, even if it’s yourself. Are you kicking yourself in the butt knowing that you’re chasing up Facebook versus working on your hours and productivity hours or making money? And if you’re not, if you don’t have any work during those hours, what are you doing to actually generate work? What prospects are you ringing or speaking to or emailing to generate that work?
[Number 5] And the last one I want to talk to you about in terms of knowing your numbers is your Conversion Rate. You know, some people sit there and go, ‘Oh, I just need more marketing; I need more clients in’, but before I ask anyone to do any marketing, the first question I’m going to ask is, ‘Well, what is your current conversion rate?’ How many quotes did you do last week, for instance, or how many prospects did you come in, and then how many of them did you actually convert – because sometimes you don’t need more marketing, you just need to know how to sell a lot better.
And this really happened with a particular client; their conversion rate was sitting at 8%. Why? Because they would get a phone call ‘Hey I want to know how much you actually charge for your service’. They would go, ‘Oh, we start from $30 an hour’, they would go, ‘Yep, great. Thanks for that.’ [Click] and hang up the phone. Well, reality is, we easily changed that, and I changed the script: ‘Great, more than happy to help you with the rates, though, before I say that, would it be ok if I asked you a couple of questions?’ ‘Great. What do you need here? How do you need that? What are you going to be using the service for? How much would you…?’ Blah blah blah… So we actually went into a whole heap of questions, and by the end of it, because this person could sell way better personally than over the phone, the commitment objective was to actually get an appointment at the end of that phone call – which now 80% do get an appointment, and out of that the conversion rate is around 40%. Over the last four months this person has had to put on five new team members just with the conversion rate of this. They’re subcontractors, but my goodness, they are absolutely smashing it. Just by that one knowledge on increasing that number in the business.
So guys, there are 5 really key items for your business. Go and find out some other key drivers in your business and how, what you need to do that will improve them, and watch what will happen in your business. Go and measure those, and you will see that business will change for you pretty quickly.
So that’s it for me, guys. If you get stuck on any of the drivers or if you want some Excel spreadsheets related to Break Evens and Maximum Earning Capacity, let me know. I’m more than happy to email them; all you need to do is just register for a free session below. I’m more than happy to get you that information.
So that’s it for me for another On the Mats episode. My name is Nathan McDonald, I’m an Aussie, my message is global, and my passion is business. Have a great day, guys!