How important is knowing your numbers in your business?
I have seen small businesses survive just like many Americans do in their personal life. Many live by the skin of their teeth and paycheck to paycheck. As a small business it may be difficult to scribe out some time to look at the details. Without seeing the small details, you could be missing some very important elements. Over the next few posts we will be looking at some details most businesses tend to slip through the cracks.
Most small businesses start because they fill a need for their customers. I can visualize what many small businesses tend to do as they start to grow. A term among entrepreneurs and podcasts I’ve listened to is CEO – Chief Everything Officer. First, we are going to look at a little foundation of how this could have happened and maybe it sounds like someone you might know.
So let’s name the small business and the owner to help us visualize and imagine what could be happening. Let’s call the business Widget Builder and the owner Sam. Sam starts Widget Builder because he had a friend who needed someone to build widgets. Sam starts the business and starts building widgets on the side of his full-time job. Soon he’s working 3 or 4 hours a day on his side business and he’s finding new customers who also need widgets built. Before too long Sam quits his job and runs the business full time. Then he needs to start hiring people and before he knows fully involved and years and years just fly by.
What happens most of the time is Sam is mostly putting out fire after fire and working 60, 80, even 100 hours a week and doesn’t seem like he can keep up. Mostly reactionary decisions are being made and planning and analyzing the business gets pushed off for future and ends up never getting done.
Recently I heard a business owner that called into a radio show trying to get advice on whether to file for bankruptcy. His company has 1.5 million in sales. How can we get that far out of touch of the condition of our businesses that far in trouble before we seek advice? Perhaps trouble could have been avoided by staying in touch with certain key elements that I will be writing about.
One of the keys that most businesses either do not track, or neglect to keep up with. Cost of acquiring customers (CAC) and is very often not even calculated. I was reading about a business that their price for the item they are selling is $97. When calculating their CAC it was $143. What is wrong with that picture? That business probably won’t be around long with numbers like that.
The CAC is calculated by taking everything spent on marketing, including salesmen, website, advertising, etc. and divide into how many items sold. With numbers like this example I would tell that company to raise the price to $197 until they can figure out how to acquire customers at a much lower cost. One might argue that they would lose to many customers if they raise the price, but you cannot run a business with negative. It is important to have enough margin to generate the cash flow to spend more money on acquiring more customers to continue to grow.
The main point I am trying to make is you must make time to look at important numbers. CAC is just one number that I believe every business should be looking at, adjusting and modifying, always tweaking focusing on continuous improvement to always get better. If you don’t have time to find and study the numbers, then you should investigate finding someone who can do that for you. It is just so important to make sure you are staying or getting profitable so your business can thrive and serve your customers.
Over the next several blogs I will dive into some key elements that managers and owners might forget to check, or keep and eye on to help track, and redirect the track their business is on. Keep watching for the next several posts and we will investigate more items to get into your business.
Thank you for reading my blog post and make sure to subscribe so you can see all my posts and let anyone else know about it if you think they might get something out of my posts.