Ask most business owners about the non-financial numbers in their business and they’ll look at you like you have two heads. But what if I was to tell you that they may be the most important numbers in your business? But how is that so?
The easiest way to describe Non-Financial Numbers are those metrics that don’t have a dollar sign in front of them. So things like number of full time employees, number of leads per month, your conversion rate, number of current clients, retention rate of current clients, average number of invoice issued.
You might remember in a previous article I spoke about the 6 drivers of revenue. Well if you go back and have a look, you’ll notice that 5 out of the 6 drivers are actually non-financial metrics. The only financial metric is average $ amount per invoice.
Marketers and sales people are very attuned to the importance of their non-financial numbers. Think about it, in marketing you are tracking things like number of leads, where those leads came from, how many opted-in, how many bounced, how many signed up to an event, how many actually attended the event, how many made a purchase at the event, how is your shopping cart abandonment rate. Sales people are no different as they track how many calls or appointments they make per day, what is their average conversion rate, how many people buy, how frequent do customers buy etc.
Many business owners don’t review and focus on these numbers because:
- a lack of understanding – they don’t know what they are, where to find them or how to measure them
- they focus on their bank balance and a handful of numbers from their accounting software
- they don’t have a regular accountability and monitoring system in place to review these and have a discussion with their advisor
Most often these non-financial numbers are going to be hard to find because you are simply not tracking them in the first place. There are no systems, processes or tools in place. Do you use a CRM (customer relationship management) to track new leads and sales appointments? do you review (or understand) your online marketing campaigns and how they are performing? are you getting a return on your marketing ventures in tradition print advertising? do you know how many current clients you have? do you know how many you retain and keep on as clients each year? how often on average do clients buy from you?
Having a system in place to track and monitor these numbers will give you access to understanding how you are performing and where your focus should be placed.
So what’s the easiest way to view and monitor these numbers? Our business clients use Xero which we integrate with a financial dashboard. This dashboard automatically updates as Xero is updated (every few hours) but we also have the option to import a spreadsheet. So Xero will provide all of the financial details and we use the spreadsheet import to bring in numbers from your CRM or that your marketer provides or your sales people provide. Clients in the digital, SAAS and internet marketing space will import numbers from their auto-responders and CRMs and Google Analytics as they are very import to tracking the performance of their business.
So let’s put it all into perspective and I’ll presume you want to grow your business; that’s the most requested goal I hear from clients. So if you were to do this on your own, the majority of business owners would follow the traditional route of increasing their marketing spend to attract new customers, this will increase revenue but in turn they will need to invest in more people and more office space to cope with the increased workload. Sadly, most businesses grow revenue, but at the same time they increase their cost of sales and profit ends up the same. So you’ve now got more customers, more work, a larger office, more employees, more fires to put out for the same profit? I say why bother!?
Ok so now it’s my turn. The goal is still to increase revenue and grow the business but I want to firstly understand what do the 6 drivers of revenue look like now? By breaking down revenue from a large dollar figure to a number of smaller metrics we can easily see areas of opportunities and where you need to focus. Remember that the easiest thing you can do to increase revenue is to improve the small numbers. What I mean by that is that if your current average invoice per customer is only 1 invoice, then if we can increase that to 2 average invoices per year per customer then you have instantly doubled your revenue.
Or just as an example, you could double your prices and afford to lose half of your customers and get half of your time back. So let’s say your revenue is $500,000 and you double your prices. That would take your revenue to $1M but we would need to account for a few clients that will drop off which is what scares business owners most about putting their prices up. But remember that in this example, you can afford to lose $500,000 worth of clients (as an extreme example) and still make the same revenue you are already making today, but now you only have to deal with half the amount of clients and you have freed up a stack of time.
To be honest, almost every business can put their prices up by 10% right now and most clients won’t even care or realise. Even if a handful do leave, do you really want price shopping ungrateful clients? And to put it back into perspective, if you put your prices up by 10% you can afford for 10% of your current clients to leave to maintain the same revenue but with 10% more time gained.
I don’t know any successful business owners that don’t know their numbers so be sure to add this to the top of your to-do list. We would love to help you.