IF YOU DON’T enjoy numbers, you’re not alone. A survey by Ogilvy and Co. discovered that around 60% of people have trouble dealing with numbers in simple everyday circumstances. Nearly one-third of Americans would rather use the bathroom than solve a math problem! That said, numbers are a part of our lives, and understanding them, particularly as a business owner, is even more crucial.
It’s easy to get overwhelmed by the sheer magnitude of data available, but using it effectively is about applying the 80/20 rule and focusing on the few key metrics that will tell you most of what you need to know.
Below, I’ve outlined the key numbers you need to be monitoring and how frequently you need to focus on them.
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1. Sales. They are your lifeblood and need to be monitored daily. Waiting until the end of the month to see how you fared is too late to make meaningful changes if the numbers aren’t stacking up.
2. Cost of Sales. What did you spend to make those sales happen? This data needs to be viewed at least monthly, and a good financial system should be able to deliver you up this information very easily.
3. Gross Profit Margin. Sales less cost of those sales will provide you with the gross profit from this effort. The important measure on this is your margin: What percentage is your profitability? This can be achieved by dividing the gross profit by the sales achieved and multiplying by 100 to get a percentage. Your daily reports will give you this figure instantly. How does it look compared to your target?
4. Other costs. Aside from the direct cost of sales, you will have other expenses during the month such as rent, wages, advertising, etc. Your financial system should make it easy to track these monthly.
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5. Profit. What are your sales less your cost of sales and other costs? Again, you should be able to calculate a monthly profit based on actual performance. This will lead to …
6. Profit Margin. Your profit divided by your sales and multiplied by 100 to give you a percentage. This should again be measured monthly.