Your Business Metrics Matter
As Quarter 4 enters and 2020 is around the corner, understanding how your business metrics work is crucial! Now I know numbers are not the most fun to deal with. I know that the fun stuff is the social media, the live streams, creating the opt-ins and building our list, etc., but you cannot have a profitable business if you do not know your numbers. You can't make money if you don't know where that money's coming from. You can't continue towards that extra growth if you don't even know if you have growth.
So I’m walking you through why metrics matter and what to focus on!
October 1st is a start up for quarter. The very first thing you want to look at an analyze every quarter and also every month is your revenue. This is where we start because your revenue basically means money that's coming into your business. So that's your sales, your retainers, your payment plans…all of those things.
But let’s actually break it down line by line for every quarter, so you should be looking at first your month to month revenue. For example, if you're thinking about Q3, that's, that's a September revenue, that's August revenue than July revenue. You want to not only know what your total revenue was for each month, but also the month to month change.
Was there month over month of growth? Was there month to month loss? Did you feel it was it stagnate? Asking yourself these questions is imperative as you want to understand what's happening. The benefit of tracking month to month growth and quarter to quarter growth as you continue to progress in your business is that you actually start to understand the site, the seasons and cycles of your business.
You understand your best periods, slow periods, and even when you probably had to step things up. You know everybody has different times a year where they're actually planning and taking a step back from their business. People tend to do that in that slow months and they ramp up during busy months to make enough money to actually take time off during the slow months. So you really want to understand that month to month revenue and that quarter to quarter revenue.
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You also want to drill down when you're looking at monthly to understand your weekly revenue because you need to understand what needs to be happening daily depending upon what kind of business you have. If you have a product based business for example, you need to understand your customer's buying habits.
Are they buying around the 1st and 15th, aka payday? Do you have the customer base that always buys things on Fridays cause they just got paid and they want to spend it? You want to understand when your customers are actually buying and where your clients are actually paying so that you have a better understanding of when the roll out your specials.
If you know your customers tend to shop a lot around the middle of the month, typically on Thursdays and Fridays, it doesn't make sense for you to roll out a sale on the first Monday of the month, right? You may want to plan to the habits your customer base already has and that’s why analyzing your metrics matters.
You also want to look at your revenue for your payment plans, especially if you’re a service provider. You need to understand what percentage of your customers are on payment plans and how that's impacting your business.
For example, some people get a new client, get mad excited and they hop on social media saying “I've had a $50,000 launch” because they sold $10,000 worth of packages not saying it’s all in plans. People are all payment plans, so they only made $500 per person and essentially we only have $5,000 in the bank.
Understanding there’s a difference in banked revenue and accounts receivable. Accounts receivable means that's money that'll be coming in at some point. Yes you still account for that, but that money's not in your bank…it's out of your hand. Even though we all have contracts and automated payments, you can't guarantee that everybody's going to pay you (or on pay on time) and they and that somebody won't fall off. And even if you pursue them legally, that's still more expensive. So some money is just not happening.
I say that to help you get clear on that because that can impact your goals. If you have a goal of making $10,000 a month, you have to understand how many clients on a payment plans you need to bring into actually hit those revenue goals.
Closing out of your revenue, let’s now transition into expenses. When thinking about expenses we’re thinking about our monthly expenses, our weekly expenses and our recurring expenses. These are the things that are coming out of your account every month, every year and so on.
Understand expenses are NOT a bad thing. Expenses are write-offs and if you make real money, you want write-offs so don't be afraid of expenses.
You want to look at what you're spending on your technology, equipment, office space, business coaches, your teams or your professional development. All of these things are expenses and you want to evaluate them.
One thing to do regarding your expenses is assessing your technology. Some people are paying for 15 different tools because they thought that was a cheaper month to month instead of getting the one tool at $100 a month, that'll eliminate all of them. You have to make sure that you're spending your money wisely and you're investing in the right things. Don't be afraid of these higher price tags because a lot of these higher priced pieces will offer you way more features than what you're paying for.
Another thing I recommend looking into within your expenses are things that are investing in your own growth. That’s the conferences you’re attending, the certifications that you’re pursuing.
Sometimes we're spending this money on stuff that we're not really tracking to see the ROI on and a lot of times we're just buying stuff that we're not taking advantage of it. We're buying classes and we're not watching them. We're hiring coaches and we're not doing the work. We're not leveraging, and I can say this as a coach, I have a lot of benefits in my programs, but a lot of people don't maximize their benefits.
So make sure they tie back to your bottom line in some form or fashion. It's especially important if you have a product based business. You have to make sure that your expenses are in line with what you're charging for your products because some of people aren't accounting for how much we're spending on packaging. Things like spending on like tissue paper, boxes, tape, labels and stamps are all of the things that you need to ship your products off.
Many people are solely looking at the revenue that's coming in and not the money that's going out and you don't realize that you're operating in the red. To find out if you’re in good space, we’re diving into your profit.
Simply put, profit is your revenue minus expenses. Keep in mind expenses also includes salary, i.e. what you're paying yourself, what you're paying your team, etc..
What's left over is your businesses total profit. Are you a profitable business? Do you want to be a profitable business?
You also want to want to understand, yeah you have something left over, but how much of it is left over and add profit margin. Your exact profit margin is going to vary by industry, but across different industries it can vary between 10% margin and 5% margin.
You want to know what your margin actually is, so you still want to take your gross profit and divided by revenue to get your profit margin.
Now all of these things are gonna matter when you are trying to get investors or credit with the bank. Even if you hire in an accountant, you hiring a CFO, you still need to be able to go in there and talk the talk because at the end of the day, if that business thrives or fails, we're still going to be on you as the founder.
This is like a made up number in a sense, but it's the one that you do want to track. It's not something that you're going to easily find on a financial statement, but it's something that you want to have on your back end.
Just some things you want to think about is your customer acquisition costs. How much does it cost you to get a new customer?
A very easy way to understand this is think about ad spend. Let's say you’re a marketing company and all of this year you've only spent $100 on ads, but you only have 10 customers. That means my customer acquisition cost is $10 which means it costs me about $10 per client to get them in.
You want to have to actually do some digging and see how much money you actually spent on marketing and how many clients, customers that you brought in. This number probably is going to be arbitrary for a lot of people because you're probably not paying attention to it. But if you're somebody that spends a whole lot of money in ads, whether that's Instagram ads, Facebook ads, LinkedIn ads, and evenInfluencers, you should really be looking at your customer acquisition costs to understand if your ad spend is actually making sense for you.
I prefer organic marketing and things like that, which leads into your customer acquisition time, aka how long does it take? How long does it take for you to get people to go from finding you on Instagram to now hiring you as their coach or I find you on Instagram then buying your product. Do you track how long that takes?
As a service based business, it's easier to do that because you can just ask your clients how long have you been following me? Who told you about me? But you want to understand that because if you have client spots to fill for a three month program, we need to understand that if it takes you 30 days to convince somebody to book a call with you, then you can't wait until the last minute do promote it. So that last day of the former program you to start recruiting promptly.
This is everybody's favorite thing to look at and more specifically, your total followers. It is something that you do want to look at because for some of you you do have a business where social media truly impacts what's going on.
With social media this is where any social platform that falls under social media, you want to track your total followers, your impressions, your engagements and my personal favorite metric actions taken. Instagram is supposed to do a really good job of telling you who's clicking around on your profile or people are doing moves that they're making but I care more about the actions taken because I need to understand where my money is coming from.
You want to be posting then going and looking to see of all the calls that you booked after that live or that posts and ask where do those people come from? Who clicked and who did what? Try to see what's happening because you need to understand which of these platforms really worth time and ad spend.
With social media it’s important to realize that follower account is not directly tied to revenue. So focus on what’s actually happening with the followers you do have when you’re tracking the metrics on your social media.
So when you're looking at your email list and everybody says the money is in the email list. I agree, but everybody's different. You want to first look at your total subscribers obviously, but you always want to look at your month to month change and quarter to quarter changes in subscribers.
You don't have to keep people forever, but just want to just notate like what's happening with your email list.
Are you making sure that you're actively growing? Are you building out your funnels and all of those things? Then outside of that, you want to look at your average open rates per email. You want to know are people actually opening up because if people aren't opening your emails, your subject lines may be uninteresting. That means your calls to action in the emails aren’t quite there.
There's a lot of “best practices”, but you have to experiment and try things to see what works for you. So you want to make sure that you have really good open rates on your emails and everybody's is going to vary by industry. Typically your email marketing tool will tell you you have a good email open rate.
You also just want to understand obviously the open rate per email and then your overall average open rate and then your click through rate. Click through rate is basically are people actually clicking on the links in your emails?
You also need to understand your unsubscribe rate. Don't take it personally, but you do want to track that and then also your conversion rate. Your conversion rate is how many subscribers are becoming clients, customers, etc.? Are my email marketing efforts actually yielding revenue?
If you're not making money from your list, you have to to reevaluate what you're working on. That's something that I'm going to teach you 2020 jumpstart and really how to make money from everything you're putting your energy into.
There's a ton of analytics tools you can use that will tell you all of this, what you need to have are analytics tool period for your website. You want to look at your total visits and unique visits.
If someone goes on your website, the first time ever they count as one unique visitor. If they then keep going back then they’re not a unique visitor which impacts your total visits number. That's why they are different numbers.
You just want to understand are you getting return website visitors or new people and what's going on? How long people were there? What’s the bounce rate? What are the top pages they're are looking at? What are the traffic sources, which is basically me where people come in from?
You want to look at your website traffic and analytics. These numbers will really help you understand how clients (and potential clients) are navigating through your site before they actually make a purchase. Knowing this will help you streamline and continue to invest in areas that are proven to make you money.
I HAVE THE NUMBERS…WHAT’S NEXT?
What we recommend next is trying to forecast what's going to happen next in our business. You make those educated guesses by looking at what's happened in the past and tracking your seasons, to then set goals based off of forecasts.
After looking at your metrics, ask yourself:
What is the goal? Why do I want to achieve the goal? What do I want you to buy? What steps do I need, what tools do I need and how am I going to measure it?
It's essentially a smart goal, but every quarter you can use your metrics to evaluate your goals and set new ones. The good news is all of the numbers that you want you to track you should already have access to through your technology. So through your email marketing tool, through your Instagram and your Facebook analytics, through your Stripe or PayPal accounts, these will be things that you're just copying and pasting into a spreadsheet or basically exporting monthly.
Understanding of what's happening in the business and where we need to focus your efforts will save you time and money in the long run. If you have a team or a VA or somebody that helps you, you can outsource tracking your metrics to them and build out a dashboard in Google sheets so you can just copy and paste those numbers of different places.