How Numbers can Help you Build a Business that Works
If you want business growth and effective business growth strategies then you need to change your relationship with the numbers.
So often I hear business owners admitting that they know how much money is in the bank at the end of the month but they don’t take much notice of the numbers on a regular basis.
Reviewing this post in October 2020, there is now another dimension to the importance of numbers to your business. Can you survive? The predictability of sales has become more uncertain than ever before. A change in the “r” number can mean your business is isolated and has no customers. Sometimes this is manageable: sometimes it is catastrophic!
One aspect that must be considered now when determining the survivability of your business is the survivability of your customers and the ability of your customers to still purchase your product, service or experience.
Here I want to share with you what the different types of numbers are and how you can use them to plan how your business can grow and scale, so that your business is working for you, delivering the money time and lifestyle you desire. They also can help you identify weaknesses in your current business model that the pandemic could interrupt or damage further.
If you have not reached that stage where the business is working for you and you are still working for your business, read on. In this post, I want to give you some suggestions on how you can use numbers to change the way your business can work for you. And in these desperate times help you identify weaknesses and threats in your business model.
There are four types of numbers that are useful for running your business – historical, predictable, possible and assumptive. All of them have a role in helping you build the right business for you. Together, I call them your business pulse. We are going to start with the flakiest of numbers.
Assumptive
For most businesses, assumptive numbers make up the majority of your annual forecast and they are often based on very flaky assumptions. They are also the most important numbers when it comes to planning the future for your business and for assessing what damage any restrictions on your customer might cause.
You see the numbers that come from your assumptions about the results your business will achieve are gold dust. If you predict that you will sell 100 widgets in August for £397 each, you have to work out a plan to make that happen.
This is where most financial forecasting in small businesses stops.
- I will increase my turnover by 50%.
- I will sell xxx products this year.
- I will earn £xxK this year from the business.
None of these are bad goals, but where is the plan to make it happen?
This is where your historical, predictive and possible data can help you shape your plans
For example, if you know your conversion rate (lead to paying customer) is 5% and you want to sell 20 widgets at £397, how many warm, engaged leads do you need to have. You would need to have 400 leads.
If you have a shop, how many potential customers do you need to come into your shop to make that sale? If you know that historically 1 in 20 customers would buy the widget for £397, you can estimate that you need 20×20 potential customers.
By knowing how many leads or visiting customers you need, you can now work out what activities you need to plan to generate those leads. Your historical, predictable and possible data, will give you an idea of how long it takes to convert a new lead into a paying customer, so now you can factor time into your plan.
And in the current time, when COVID-19 has upset business growth temporarily or completely destroyed markets, being clear about the assumptions you are making about future business can help you adapt your plans and activities.
An additional aspect here is access to finance. If you are confident that the rebound in sales will allow your business to make up the lost ground and be able to rebuild its reserves you might consider that it makes sense to borrow some money to ride out the hard times.
But if your numbers show that your business will still be vulnerable to the ever-changing government policy, your capacity to make up the debt is going to be severely impaired.
This is why predictions of up to 40% of the pandemic loans will never get paid back. Before you take a bounceback loan or other government-sponsored debt, you do need to be very clear about your assumptions.
Possible
Your assumptive numbers feed into your possible numbers. As you attract more potential customers to your business they will become qualified leads. These are the numbers derived from your prospective business. You know the who, you are 60% or more sure about the what, the when and the how much, but you need to get them over the line. You need to spend a good deal of time nurturing and handling objections with these people, making sure you remove any obstacles getting in their way and gently nudging them to the close.
Possible numbers are great. They represent your new business or possible repeat business. You can learn a lot from possible numbers, especially about how effective your customer journey from attraction to sale is.
When you discover pinch points or moments along the customer journey where possible customers decide NOT to buy your product, service or experience, you need to dig deep into what happened and make changes. Again in the current COVID-19/government health policy determined world, being clear when changes to the lockdown rules might impact your business is vital. Improving your customer intelligence at this time is a very wise investment of your time
Predictable
Your possible numbers feed into your predictable numbers because these customers have deepened their relationship with you, they have identified how your products, services or experiences can solve their problem and they are ready to commit. For many businesses, this represents the work that has been contracted for, monthly memberships, subscriptions, standing orders or repeat payments of some form.
These are sales that you know will come in, that you are 99% sure will happen. You know the who, the when and the how much in detail.
Predictable numbers give you a baseline that you can build on. If your predictable numbers are covering your fixed costs, then there is less worry about cash BUT you have to keep them in focus. If these numbers start to change unpredictably then something has changed in your market. When that happens you need to identify the cause rapidly. And this change has never been more important because the external circumstances can change so rapidly and unpredictably.
Historical
In many ways, these are the least helpful for planning but very important to show the health of your business. They can inform your decisions and you can learn from them. Knowing how money has flowed through your business in the near past can help you predict how it might flow through your business in the future. It can identify seasonality, peaks in demand and also troughs.
But just because something worked last year does not mean it will this year. The near past figures that make up your operational cashflow reporting lets you know how the business ran yesterday, last week, last month. This is vital information because it gives you a snapshot of the health of your business. If a change to the lockdown rules is going to impact your business, the historical data can help you make quick tactical decisions about staff rotas, how to retain staff, stock orders, raw material supplies and much more.
Suddenly numbers are no longer boring. If you get to know all your numbers intimately, you can start planning your actions to make sure you reach the goals you set. And if you regularly measure your progress, you will be able to tweak, adjust and focus your efforts on the work that will make the greatest difference to your performance.
Get to know your business pulse and use numbers to determine your future, not just to report on the past. Knowing your business pulse has become a vital survival tool for every business to help you make sure your business foundations support you leading your business through these increasingly uncertain times. It is so worthwhile for you to invest the necessary time to get very familiar with your business pulse.
How well do you use numbers in your business? Write a comment below and let me know. Has this post made you think differently about your numbers? What has changed in your thinking? How can you use your Business Pulse to help you react effectively to COVID-19 disruptions?
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How could you implement these lessons in your business? Please comment below.