What are the 3 numbers you must track in your business? These numbers are not the standard stuff. We want to make you think a bit differently.

We know we’re accountants and a bit biased, but these numbers are not the standard stuff. We want to make you think a bit differently about the numbers.

We could pick loads of really technical ones to make you think “I really need an accountant”, but these are numbers you can pretty much do yourself and will help you make your business hugely successful.

You see, lots of businesses do have a feel for their overheads, but have no idea on the cost of marketing.

And they do think of it as a “cost”, ie spend what’s left after everything else. Some of these numbers help you turn that on its head and see it as an investment to grow your business. After all, what’s more important than getting and keeping customers?!?

So, why do so few businesses work out the business maths of that?!? Free marketing can often be rubbish marketing. Expensive can be as well, but you need to understand the maths and make an informed decision.

The key is you must understand them and be crystal clear on all of them. Without that, you’re always going to struggle against the super smart business owner who does get it.

So, what are the numbers? Find out by watching our video, or reading the text below:

 

1 – Your profit

We promised you they wouldn’t be obvious, but we can’t overlook this one.

You need to know how much profit you made last year, last month and last week. Without that, how do you make decisions?!? If you don’t know your profit, it’s like flying a plane without the instruments.

The key is that this has to be a proper figure, not a finger in the air! And it can be liberating. If it’s where you need it to be, you can go and do the good stuff!

 

2 – Cost of getting a customer

How much does it cost you to get a new customer?

Firstly, how much does it cost you to get a lead? For example, if you use Google Adwords, you pay Google each time someone clicks through to your website. Therefore, if you pay £1 for each click, you pay £1 for each lead. The amount will be different for each type of marketing – if an advert costs you £1,000 and you get 20 phone calls, it’s cost £50 per lead.

The next step is to track the cost of actually getting a customer – the conversion from lead to paying customer can be very different on each type of marketing. Leads from Google Adwords may be cheap, but the conversion rate is low. The conversion rate on the advert is probably higher – if they’ve actually picked up the phone, they’re probably more likely to buy.

The key is to calculate this number for each of your sources of marketing.

Free marketing that doesn’t get you any customers is pointless, especially when you factor in your time. However, paying money for marketing that delivers can be a great investment – you just need to know exactly how much income it is delivering for you.

 

3 – Value of a customer

You can calculate how much it costs to get a customer, but how much is a customer worth to you when you get them?

Firstly, how much do they spend with you upfront (or in the first month as a client)? For example, if you’re a restaurant, what do they spend on the first meal?

Knowing this number is important for cashflow – if you time things right, you might be able to get the customer to pay you before you’ve even paid for the marketing.

More importantly, though, is how much a customer spends with you over their lifetime as a customer. If you do run a restaurant, how many meals will your average customer eat with you over the next few years? Or, if you’re a consultant, how many months will your clients stay with you on a monthly bill?

If you don’t have the exact numbers to hand, you could estimate this by taking your total sales over the past 3 years and dividing it by the total number of customers.

But, of course, you can’t just look at the sales figure. You should also look at the profit over the life of a customer. Again, if you don’t have the exact figure to hand, you could take your total gross profit over the past 3 years and divide it by the total number of customers.

 

What next?

So, you now have the 3 numbers:

  • Profit
  • Cost of getting a customer
  • Value of a customer

 

What are you going to with the numbers? Firstly, you can make sure that each of your marketing sources is actually paying its way. Is the value of a customer bigger than the cost of getting that customer? If not, either stop that piece of marketing, or understand what you need to do to fix it.

If the value of the customer is bigger than the cost of the marketing……do more of that marketing!

 

 Let’s get clever

But then you can start to get really clever. Just by tracking these numbers, you’re one step ahead of most business owners. And by using them, you can steal a march on your competitors.

After all, the business that’s willing outspend its rivals to get a customer will usually get more customers. And now you know how much you can spend and still make a profit. Most business owners underestimate this as they don’t think about the lifetime value of a customer, just the first sale. And that means that you can outspend them and get more customers than them. And be making healthy profits on all of these new sales.

Let’s look at an example of a big business that really understands this.

 

It works for Sky, so it can work for you

Sky TV have had an “Introduce a Friend” scheme going for a few years. At the moment, if you introduce a friend to Sky TV, they’ll give £75 each in vouchers to you and your friend.

That sounds pretty generous and can be the tipping point in a decision to choose Sky over Virgin or BT.

But how do the figures stack up? There’s some costs of advertising but, at its simplest, the cost of getting a customer is £150.

But what’s the lifetime value of a customer to Sky TV. By the time people have added in HD, Broadband, Multi-room, Movies and Sports, the average monthly bill is probably well over £50 per month. And how long does a customer stay? There’s a minimum contract of 12 months, but most people must stay for 5 years or more.

So, the figures start to add up. £50 per month for 5 years is £3,000.

So, is the £150 of vouchers still generous? To the customer it is, so it’s a great offer as it gets new customers. But for Sky, it’s simply a smart spend and a clever understanding of their numbers – the lifetime value is far bigger than that initial cost.

Summary

It really pays to understand these numbers.

  • Get clear -you have to know this stuff
  • Track the numbers monthly – it can be just one piece of paper, but track them
  • Get help – if numbers are not your speciality, you need to find someone to help you

Your business CAN NOT succeed without real clarity on the numbers but, once you understand them, you can use them to beat your competitors and get loads more customers.