It’s true: the richest entrepreneurs are the ones that know their numbers inside and out. But I’m not just talking about the numbers on the traditional income statement or balance sheet. I’m talking about numbers that will allow you to dig deeper into strategically changing the profitability of your business.
Here are five sets of numbers that every entrepreneur shouldn’t be without.
1. Revenue per client.
Take your last 12 months revenue and divide it by the number of clients you’ve had in the same period. If you have several disparate categories of clients, such as hospitals, home health care companies, and nursing homes, you might get a more meaningful average by calculating revenue per client category. Each month, you can update this number so that you can see the rolling average. Then you can ask, is the number trending up or down?
This number gives us a chance to measure things such as cross-selling efforts and revenue potential. We can take a look to see how many clients have purchased one or more products or services from us. You can also use this number, possibly using a longer time horizon such as five years, to determine how much you’re willing to spend to get a new client.
2. Revenue per employee.
This one’s easy to compute. Take total revenue and divide by the number of FTE’s, or full time equivalents, during the same period. Include both employees and contractors. If you outsource entire departments in your company and do not include this headcount in your FTE number, you may not be able to measure your company against industry benchmarks, but you will be able to compare periods within your own company.
Use this number as a very rough guide to productivity and profitability. In the accounting industry, the benchmark is often revenue per partner.
If your employees are billable, you can figure this by individual employee and get some great insights about where the workhorses are in your company.
3. Profit margin by service/product line.
One of my favorite things to do is to play with revenue mix, and knowing your profit margin by each item you sell is essential. I remember being the first person back in the 1980s to suggest and to set up a line item profitability report for a Fortune 500 company I worked for.
This one’s complicated to compute; you’ll likely need your bookkeeper’s or accountant’s help. You may also need to classify things differently in your accounting system in order to get good numbers. But it will be worth the effort; I promise. There’s nothing like finding out you’re spending 80% of your time generating 20% of your profits (and vice versa) so you can finally do something about it.
4. ROI per marketing channel
One of the biggest mysteries in small business is where to get clients without spending a fortune in time and money to get them. When you can calculate a return on investment for each marketing channel you use, the mystery is solved.
To calculate these numbers, track your marketing expenses separately by method. For example, keep separate categories for direct mail campaigns, referrals, online marketing, networking, trade shows, your newsletter, and other channels you might be using. Also keep track of which clients come from which method. If a client has seen you in multiple ways, use the first one. The revenue these clients bring in divided by the marketing costs will give you a return on investment number.
The action item is simple: get the most number of clients using the least expensive channels.
5. Daily revenue.
This one’s pretty simple, yet indispensible. Know what’s coming in daily. Period.
Which numbers do you love to track in your business? I’d love for you to post your favorites and your comments on my blog or on my Facebook page here http://www.facebook.com/sandismithleyva.