Vital Numbers in Your BusinessVital Numbers in Your Business

We often speak to prospects and clients about the vital numbers in their business.

Whilst you’re having a well earned break over the Christmas period we thought it would be useful to share this video with you on the vital numbers in YOUR business. 

In order for you to succeed and meet your growth targets for 2022 you’ll need to KNOW and TRACK them. Do you? 

In this video Kim will go through the vital numbers in your business that you need so you can succeed and grow in 2022. 

If you’d like some help with this just ping us an email to wecare@kmaaccoutancy.co.uk. 

 

 

What are the vital numbers in your business that you should know about?

If you’re a business owner, you need to know your vital business numbers so that you can manage your business properly, if you’re serious about increasing your profit, sales and cashflow. What we know with certainty is that if you don’t, you’re going to get into a whole heap of trouble at some point.

Hi, I’m Kim from KMA Accountancy and I often get asked by clients and prospects, what should they track in their business?

People will often come to me with very onerous documents, with lots and lots and lots of KPIs, or key performance indicators as we call them. The problem is they’ll keep it up for a short period of time, and then it just gets too onerous and they stop. What I wanted to do in this short video is to show you the numbers that you can and should track to be on top of your business profitability.

REMEMBER: LESS IS MORE!

At KMA, we’re proud of our productivity and ability to continually support and help improve the sales, profitability and cashflow of small businesses. Oh, and that’s on top obviously of reducing the amount of money that they pay in tax. Legitimately, of course.

So, let’s look at your operational numbers…

SALES

Do you know your monthly total sales and what they were in the previous month? Knowing your monthly sales figures, will give you certainty of having had a good month and whether you’re on track or not compared to budget.

Next – do you know what your average sales invoice value was last month?

Increasing this average value by selling more products or services and/or charging higher prices can massively increase your profitability. But before you can look at strategies on how you can do this, you first need to know where you are right now, what your current average is and why.

Gross profit is another good metric

Do you know what your gross profit was last month? This tells you how much profit was made from selling these products or services.

Enough profit has to be made in order to pay for all your overheads, premises, marketing, staff. Oh, and of course the tax man.

Do you know what your gross profit percentage currently is for each of your main product or services? Virtually every business sells more than one product or service, and the profit made on each is likely to be very different.

So, to improve the overall gross margin percentage, you can focus on selling more products or services which have a higher percentage.

Clearly any poor or loss-making products or services would be the first ones to focus on improving or ditching!!

Often, these poor performing services or products are masked because we look at it as a total percentage rather than looking at it individually.

You could also look at what the gross profit percentage currently is for each of your main customers? Sometimes our highest grossing customers are not as profitable and may not be our best customers.

Not all accountants are equal, and it’s also the same about customers.

Once you know, the gross profit percentage for each customer, it’s much easier to devise a strategy to work out which customers you need to focus on to improve your margin because clearly if you improve the margins, even slightly, it’s going to flow straight into your bottom line.

Let’s look at net profit now. Or BOTTOM LINE AS I LIKE TO CALL IT

Do you know what your net profit was last month? This tells you how much profit the business has made overall once, clearly, all the business costs in the month have been accounted for, tax has been allowed for, and of course, most importantly, you have been paid.

A net profit number, which is positive means your businesses healthy, a loss in the short term whilst not great isn’t the end of the world , however a loss clearly can’t be sustained for any length of time, unless you’ve got endless pockets of cash. You need to put strategies in place quickly to turn this around!

An extremely Vital number to know is your break-even point!

Knowing what sales need to be made every month to ensure that the bills of the business and home are paid will give you tremendous peace of mind and for any business it’s your first immediate milestone to achieve.

MARKETING is an area where we need to know some vital numbers as well

Do you know what the lifetime value of an average customer is?

Now, we know that you’ll have different products or services, and therefore potentially lots of different customers. The lifetime value is the profitability of an average customer multiplied by how many years on average that customer stays with you.

I bet you will be pleasantly surprised it is usually much higher than you think, and simply knowing it will influence your thinking on how much you’d be prepared to pay in marketing costs to get a new customer.

NEXT – Do you know what the average cost of getting a new customer is from each of your marketing pillars?

By Pillar I mean type of marketing for example, Google PPC, Facebook Ads, Networking, Advertising etc. Each pillar will give you a different return.

You can increase profits by spending more cash on the marketing pillars that work and less on the marketing ones that don’t clearly. So if you don’t know how can you do anything about it!

It’s really important to track what you spend on your marketing and what your return on investment is. If you use use tracking numbers or voucher codes, you will know for certain where the leads have come from and you’ll be able to track your marketing spend much better.

Your marketing cost per sale is the total marketing spend on that pillar divided by number of sales. For example, six sales made with a total spend of £2,100 gives you an average marketing cost per sale of £350.

When we know the cost of getting a new customer by each marketing pillar we can then drill down and find out what your cost per lead is?

Now, this is the total spend on marketing for each pillar divided by the number of leads generated. So, for example, Let’s say we spend £1200 on a campaign using Google AdWords, and it brings in 30 leads, then the cost per lead is £40.

Now, the cost per lead will vary hugely dependent on which marketing pillar is used. For example, exhibiting at a show could mean a much higher cost per lead than using, say, Facebook ads, but the quality of those leads could be much better because you’ve already had a conversation and qualified them.

Once we know our cost per lead its then a good idea to look at our conversion rate

Do you know what your conversion rate % is from lead to new customer?

This measures how many leads you need to generate to get a new customer.

And by just slightly tweaking this percentage, you make even more profit from your marketing.

The conversion percentage is the number of leads divided by the new customers gained from using that particular marketing pillar. For example, from 100 leads you may get 20 new customers. So therefore, your conversion rate is 20%. i.e., it takes you five leads to get one new customer.

When you are looking at improving cashflow an important metric to look at is what are your debtor days?

How long does it take a customer to pay you?

The impact of reducing this number is that your cash balance will improve. The money will be in your bank sooner, and obviously there’s less risk of not getting paid.

Do you know what your stock turn is?

This measures how much of your working capital i.e. cash is tied up in stock and work in progress. The impact of this is that your cash balance will improve.

You want to turn your stock over as quickly as possible, because there’s a risk that it might go out to fashion and you’ll not be able to sell it. And obviously if you’ve got work in progress, you want to finish that and invoice it and get it out of the door so you can get paid for it as quickly as possible.

A fundamental metric I’m going to finish with is so important and should be part of every piece of business planning you do is WHAT IS THE PROFIT YOU NEED TO LIVE THE LIFE YOU WANT TO LIVE.

Do you know what the monthly sales have to be in order for your business to generate the profit that will pay for the lifestyle you want for you and your loved ones?

This is where you really need to think carefully about what your personal goals are, as well as the costs of the business. YOU GET TO CHOOSE!

Knowing the figure will give you the best possible chance of having the lifestyle you want, as you’ll know how much it’s all going to cost.

And once you’ve got that figure, the next step is to work backwards in order to calculate the sales figure that the business needs to achieve, which will generate the profit that allows you to take out of the business the money you need to pay for this lifestyle.

Once you know that number, you then can create a plan to make it happen.

So now I’ve given you the vital business numbers that you need, now it’s time to put them into action. This is what we help our clients do.

 

Nothing will change though unless you take action, let me know how you get on I love to hear how people have taken action and improved their lives. If you need any help implementing this, give us a shout. You can call me on 0161 410 0020 or email me at wecare@kmaaccountancy.co.uk. Don’t forget to subscribe to get our best content and please comments and share with other people who you feel would also benefit from it!

 

It is important that you take professional advice before making any decisions based on the information that you learnt here. While every effort has been made to make sure it is accurate it cannot be precisely tailored to your personal circumstances. This article is for general information only and no action should be taken, or refrained from, as a result of this information.  Professional advice should be taken based on specific circumstances in each individual case.  Whilst we endeavour to ensure that the information contained in the article is correct, no liability  will be accepted by KMA Accountancy which is a trading name of Kim Marlor Associates Ltd or damages of any kind arising from the contents of this communication, or for any action, inaction  or decision taken as a result of using any such information.

Get in touch

0161 410 0020
info@kmaaccountancy.co.uk

KMA Accountancy
Progress House
17 Cecil Road
Hale
Altrincham
Cheshire WA15 9NZ

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