Know your numbers is paramount in business if you are not only going to survive but thrive. Following the right number in business should be the equivalent of measuring your heart rate, blood pressure and temperature in your body, the minute any of those measurements starting going astray you know your health is under threat. Your numbers in business will give you the same message if you track them fanatically. There are two types of numbers that we track and recommend our clients track:
These are your typical measures that will more often than not highlight certain areas of the profit and loss sheet, things like turnover, gross profit, and net profit. Other measures that are common here are cash in bank (oxygen of the business, without that you die), labour costs as a percentage of sales, number of days our work is booked in advance, etc. There are many here, the key is to figure out what is really important to the business, set them as your number goals to reach or in the case of ratios, maintain and report on them weekly or in the very least monthly.
Knowing your numbers and reporting on them this frequently allows us to see patterns in the figures and if they are not what we want to see, we can react early enough so we can get them back on track as soon as possible
Break your business down to its basics, people aside, and it’s all about numbers – money in and money out. Beyond this – what numbers should you be watching? An integral part of the Gazelles’ Mastering the Rockefeller Habits is about identifying your critical number.
What is your critical number?
It’s a goal (number) that, when achieved, will help your business grow. Your critical number is not a dollar figure.
So it definitely isn’t “we want to have a turnover of $1m next financial year.” A number like this is too difficult to stay focused on. Rather, it’s a breakdown of how you might get to that target. The critical number must always be aligned to the number one priority in your business.
The smaller the number, the better – it’s much easier to focus on. It might be “we need to bring in 10 new clients or increase all current clients’ purchases over the year by five percent.” In these examples – the critical numbers are 10 and five respectively.
While it is essential to begin the process of finding your critical number with the end in mind, you need to break the final goal down. What do you need to do to meet your goal of increased turnover?
Your critical number must make you uncomfortable, but not sick – it needs to be achievable, but you need to stretch the whole team to achieve it. And team is paramount here. Your critical number must be shared with them – it is a living breathing part of your day-to-day business.
How Do You Apply the Number?
A client of mine, own a plumbing company. He approached his team and explained that the critical number was about bringing in a certain number of new clients each quarter. Of those new clients, a smaller number would be related to completing one of two types of jobs on new homes.
The concept was explained to the team and a competition put in place to come up with a visual way to represent the quarterly and annual goals set by himself. The winning representation was an adapted monopoly board. Each side being a quarter and each corner being a celebration when they reach the targets of that three-month period. Integrated is a brick and pipe system to identify the different types of jobs secured, not unlike the house and hotel placement on the original game.
The owner of the business says it is a highly visual and a fun way for everyone to see exactly where sales are at, what type of sales they are and what needs to be done to get the appropriate pieces (jobs) onto the board. “It is always in sight and it helps us all to focus better.”
Don’t forget to celebrate!
Celebrating along the way is critical – every win is important and help keeps the team aligned and engaged.
My client’s team know that if they fill the board the appropriate way, by focusing on the small critical numbers set for each 90-day period, the business will prosper. If he had calculated a number based on what dollar figure these new clients represented – it would have been meaningless to the team. However, by breaking it down to a small number – a process – everyone is engaged and working hard towards it. “It’s a small focus for a big goal”
Know your numbers, find a way to breakdown your numbers and find a proactive way to engage the team is critical. Let’s face it – numbers can be boring and un-motivational, so find a way to bring your critical numbers to life and you will see your business grow.