Which Numbers to Watch In Your Small Business

We can dissect and pull apart all sorts of numbers for any business, but we have to first identify what question we are trying to answer, otherwise we can easily get lost in the weeds.

The most important metrics (other than the basics of gross revenue/gross expenses/net revenue) are those that move the needle on your profitability. Depending on the particular industry/market, this will vary for each company.

Some important areas to consider:

1. Particularly indicative expenses such as COGS, labor, rent, marketing, technology, etc.
2. Margins, including: Gross Revenue/Net Revenue; Gross Expenses/Gross Revenue; COGS/Gross Revenue
3. Marketing/Sales numbers including: New Leads Generated; Total Leads; Sales Meetings; Sales Conversion Rates; Marketing Expenses; Time to Close a Sale

Deciding which aspects of your Profit & Loss Statement can be tricky!

*EXAMPLES*

Consumer Service Company
The steps to achieving revenue for this company involve:

1) list acquisition
2) direct marketing
3) customer registration
4) sales appointment
5) sales meeting
6) sale
7) billing

While we monitor each aspect, we have found that the single most important indicator of how we are doing is our close rate - Step 6 divided by Step 1. So if we reach out to 10,000 people this month and close at our standard rate of 2%, we know we're going to make the rest of our numbers for the month. When that rate goes lower than 2%, we work our way backwards to determine what is not working and make tweaks to the process. Sometimes we go above 2%, in which case, we learn from that, too!

Design/Manufacturing Company
This company has multiple revenue streams:

1) business-to-business sales (including in-line custom-design; in-line
products; exclusive design contracts)
2) direct-to-consumer sales (including company-owned retail store,
company-owned online store; custom design)

Pulling the numbers apart is time consuming and difficult. At this point, we have identified the most profitable aspects of the business (B:B in-line products and exclusive design contracts) and focus on pulling those numbers apart in detail, asking the basic profitability questions. For the company as a whole, we look closely at labor costs, which are the highest expense and also represent the greatest potential weakness for the company.

Virginia Ginsburg is founder and chief consultant at Swell Strategies. She is passionate about supporting small business owners and entrepreneurs in starting and running successful enterprises. An avid reader, in this blog she reviews books and articles and relates specific learning points back to entrepreneurial businesses.