Episode 372: Know Your Numbers

Hey everyone, well, I have done a number of videos and podcasts talking about different ideas regarding tracking metrics, KPIs, your numbers, scoreboards and dashboards and scorecards. Scoreboard for the business, dashboards that supplement that, and then scorecards for your team members. I've talked about the idea of going from VFR to IFR, meaning Visual flight rules to being able to fly the plane of your business through just the dials, reading the dials and the switches in the cockpit of your business. These different analogies there. And I did a video podcast episode, uh, from my lessons learned or key takeaways from the Tampa Mastermind. And by far the biggest one that we all stood out from was know your numbers. And from that, I, you know, I discuss and share, okay, ideas are everywhere, implementation is everything. And so I didn't want that lesson to go lost on me. So I started to think, well, what are the numbers I need to know? What are the numbers that we discussed there? And what are the numbers that I need to make sure that I know? And then can I pass that along to people that are in our community or listen to this podcast? Now, I wanna be very clear, this document is going to be a living document. And so we're gonna give you access to this document. It is, the template is called Know Your Numbers. I mean, I was gonna try to come up with some other fancy name for it, but then I said, you know what, let's just call it what it is on the tin. And so I say that to say that this document will continue to get updated as I think about other additional numbers and things that I bump into. The reality is, is if I wanted— if I waited until I spent all the time to make sure every one possible number that I think a business owner would know, I would probably wait 3 months, 6 months, maybe even a year or 2 years before I would finally release this episode. And so instead of doing that, I thought, you know what, these are the ones that that probably cover 80% of the big numbers. Now, for sure, depending on the business that you're in, there may be very obvious numbers that you need to measure that are not going to be on this list because this list is not designed to be industry-specific. It is just the high-level numbers that are important to know. And again, this came off the back of the mastermind that we were in in Tampa And a lot of these numbers were discussed and talked about and made a lot of us force and say, oh, you know what, do I actually really know that number or is it kind of an educated guess? And so for some numbers, I think it's okay to have close to what it is, but then some of these numbers, it's important to absolutely know exactly what it is, um, really at all times, or at least don't have them updated on a weekly basis. So I'm going to, uh, kind of go over these with you. And again, if you want this asset, where you can go is go to blueprintos.com/assets, blueprintos.com/assets. And if you're one of our members, this is gonna be, um, in your community portal. You know where to access it. Okay. So number 1, I've got this, uh, divided into sections of business model, marketing, sales, And then financial numbers. That's kind of how I should begin to structure it. And there's roughly about 12 numbers on here, so I'll go through them. Um, I'm not gonna spend a ton of time on each one of them. I may double tap on a couple of 'em if I think that it's important and maybe try to give you kind of an idea of, uh, how to calculate that. All right, so number 1, business model. I think this is kind of some high-level numbers. Number 1 is just how many customers do you currently have? How many customers do you currently have in your business? Do you have 2,000? Do you have 4,000? Do you have 35 customers? Number 2 is, what is your average customer value, or your ACV? What is the average customer worth to you in terms of annual revenue? And I would even add one more that I'm gonna put on here, which is, do you know the lifetime value of a customer? So when I think about ACV, I think about that on a 12-month basis. So ACV, average customer value over 12 months, is what I tend to think about that number as. And then number 2, LTV, lifetime value. What's the lifetime value of a customer, which is how long they're going to stay with you on average? Times how much they are worth. So if you have somebody that is worth $1,000 and their, the lifetime value for them is they stay with you 5 years, then $1,000 times 5, their LTV is $5,000. That becomes important down the road, especially whenever you're beginning to look at your marketing expense, which is then how much, how much are we gonna have to spend to be able to get a customer? Okay, let's transition now down into marketing specifically. And 2 big ones here is gonna be your CPL, which is your cost per lead. How much does it cost you on average to get a lead, someone that you can contact? Now, um, there certainly are different traffic sources that you may have access to, and so you may end up having, you know, one, one traffic source cost you, uh, $8 per lead and another one cost you $50 per lead. We're talking about a blanket average here of how much did we spend total in marketing last month? Divided, divided by the number of leads that we actually got. That is our cost per lead. So sim— again, simply put, total marketing spend divided by the number of leads that we received. Now this next one is one that maybe the first few that we went over are pretty easy, but this next one may be a little, a little bit harder. You may not have ever calculated this one before. And it's called CAC, or customer acquisition cost. Customer acquisition cost. Okay, so your CAC is your total marketing spend plus your total sales expense— expense— your total marketing spend plus your total sales expense divided by the number of new customers received that month. Now, I'll share with you This one gets in a lot of debate. If you go to YouTube and search CAC, customer acquisition cost, you're gonna get a lot of people that give you different opinions as to how far you go, what numbers get included, what numbers don't get included. I'll give you an example. If you have a specific CRM that you are paying $300 a month for, and that CRM is dedicated to help you to be able to manage the leads and help your sales team and help your marketing team to manage the leads that you get, work them through a pipeline, that absolutely should be included in your customer acquisition cost. If you have 2 sales team members, they're paid a certain amount of dollars base salary every month. Let's just say that is $5,000 each and you got 2 of them, that's $10,000 a month in sales team expense plus their commissions, et cetera. Plus how much are you spending in marketing. Let's say you spend $10,000 in marketing, and you divide all of that, you add all of that together, and you get a number. And let's just say in our example that I'm kind of going through here, by the time we look at our, our software that we have, our sales team expense, and plus our marketing expense, we're at $25,000 a month. That's our total marketing and sales spend. But let's say In that month, we, we received, got 50 new customers. 50 new customers. Take that $25,000 divided by 50. It's our CAC is $500. Our customer acquisition cost is $500. It's costing us $500 in total marketing and sales expense to get there. Where this gets really challenging is people will then start to take rent and say, well, I have a 2,500 square foot building. This salesperson's office is 500 square feet. Now that would be a really big office. You get my point though, and they start allocating those things to it. I mean, can you do that? Sure, I think you can if you wanted to go that far with it. I think it's a lot cleaner if you just look at, um, if you just look at specifically how much you did you spend in marketing last month, How much did the sales team cost you? And add those two things together and divide that by the number of new customers. Now, the number of new customers you got could be 2, depending on the business that you're in. I mean, if you're selling jets, it doesn't cost you, you know, it doesn't, uh, doesn't take very many sales for you to be able to justify the marketing and sales spend, even if that is in the, well, in the six figures. I think that's a really helpful number to be able to know. However, so we went over CPL and marketing. And we went over CAC, customer acquisition cost. Now off the back of that, just simply makes sense for us to know, well, how many sales did we make last month and how many new sales did we make last year? And when I think about sales, I'm thinking about new sales and I really want to know last month. And I also want to know, well, how many did we make last year? And this is really helpful to know. Like, let's say you're in the middle of the year. I happen to be recording this whenever it's in May, and I would want to know, I would want to have perspective. For me to be able to say, okay, wait, how many new sales did we make in May? Uh, we made 5. How many did we make in May of 2023? We made 2. Okay, that's great. How many did we project to make in May? We projected to have 4. Fantastic. So we actually outpaced last year and we outpaced our forecast. Of how many numbers that we thought we would actually make. That is fantastic. Those are really good numbers. Well, it also then pays to know how many total sales did we make last year. I've asked this question a number of times to business owners in different industries, and I'll say, how many, how many jobs did you, how many jobs did you sell last year? Uh, I, I don't know, 50. How many new customers did you get last year? I really don't, I really don't know. It's, it's, it's incredibly important to know what those numbers actually really look like. So you, again, you can begin to have perspective and to be able to set future targets. So again, how many new sales did you make last month? How many new sales did you make last year? How many new sales did you make this time last year? So depending on whatever month it was or even the quarter. So if you're tracking a monthly, it's super easy to know what you did for the quarter. So if you did 5, 5, and 5, April, May, June of last year, and this April, May, June you just did 10, 10, 10. Okay, well, we did 15 last year, we did 30 this year. That's fantastic. Now, how does that compare to where we said that we wanted to be? What was our actual— how did that compare to our forecast? What you'll see this described as often is sales velocity. So what's our sales velocity Last month, last quarter, same time period last year, against forecast, etc. All right, next, how many— this is a good one to know— how many new sales, or how many sales does it take a salesperson, or how many sales does a salesperson need to be able to break even on what you're investing in them, let alone make a return. Now, this is specifically a sales breakeven number. Now, this doesn't mean that we're only shooting for a breakeven with our sales team members, by no stretch of the imagination, but we're not going to be able to get a return on them unless we at least know, uh, what breakeven actually needs to be. Does that make sense? So if we know that a salesperson that's paid $30,000 base they need to sell— they don't have to sell as much as somebody who is at a $100,000 base, as an extreme example. But let's say the difference between $30,000 base and even $40,000 base or $50,000 base— I mean, what that person at $50,000 has got to be able to do to justify their break-even, let alone be able to get a return. So what specifically— what are the number of sales specifically that they need to be able to make to be able to break even. Okay, so we're at the tail end here. Now let's get into some financial metrics to be able to know. So I've got a few here. Number 1, monthly run rate and your monthly burn rate. In other words, run rate is on average how much money on a monthly basis does your business bring in even if your business is not a continuity business, meaning recurring revenue. But on average, what is the last 90 days monthly run rate? I call that MRR. And then also kind of adjacent to that, or along with that, is what's your monthly burn rate? So in other words, we average $30,000 a month in revenue, we burn $20,000 a month. So on average, our profitability is $10,000 a month. Okay, let's take that, extrapolate that out. We average $90,000 a month in revenue, we have a monthly burn rate of $70,000, profitability on average is $20,000 a month. Okay, great. That's really good, good to know. Those are basic financial numbers that you need to be able to know. I would also add then revenue. What was last year's revenue top line and what was last year's profitability? Number 4 is going to be year-over-year growth rate. So that looks at The growth that, you know, how much did you grow contextually? A lot of people would say, well, you know, what, what number are we talking about? I am talking about on your income statement or your profit and loss statement. It says your total top line revenue. How much money did you bring in total? How did that compare to last year? Now there's a formula called Rule of 40 that I've done an episode on, I've done a podcast on. This kind of goes along with that, but this is a key number to know. How much did revenue grow year over year? 2020, 2021, 2022, 2023, 2024. If you know year over year, then you can calculate your average growth rate and see, is the pace of your business going up and down? Is the growth slowing or is that actually starting to pick up? All right, last two. Really, these are getting into financial, kind of financial metrics, but it's total, uh, your team percentage as a, um, your total spend on your team as a percentage of revenue. Pretty much every business, the biggest spend that you're going to have is on your team, and then the second business is going to be, um, your marketing. Now depending on the business, that could be a little different, but by and large, those are two main drivers of the expenses of the business. So Total, what was your team percentage of revenue? Some of this is very dependent upon the industry that you're in. Some people I know, some industries operate off of a 30% total team, uh, percent of revenue. Some businesses just can't get there. They're going to be more in the 50 to 55% or so. And then lastly, marketing. And typically the number that I can generally look at there is going to be 5 to 10%. The more that you want to grow, the more typically you're going to need to invest in one of these two things, which is team and on marketing percentage. So again, if you would like to have access to this— as a matter of fact, as I was kind of doing this, it's on a Google document, and I was thinking to myself, you know, it would actually be really good to add this to one of our, uh, like a Google Sheet, like a spreadsheet actually. So maybe by the time you even listen to this, that we will add that Google Sheet, uh, or that Excel spreadsheet for you to be able to actually not just take this document and know these numbers, but actually then be able to plug them into, um, a template that you're actually able to use. And it can be one of the tabs that you'll be able to have. So by the time I release this video, um, then I'm going to ultimately have that document created for all of you. So go to blueprintos.com/assets and you'll be able to access the document there. Hope this served you. Those are some of the need your need-to-know numbers that I think every CEO should be able to have to be able to grow and scale their business. You know, I think numbers like this, and this type of kind of business knowledge are the things that I kind of thought I was going to get in school, but I never did. And that's not a knock on Auburn University. I just didn't get these kind of small business entrepreneurship numbers. And that's one of the reasons why we created the 2-Day MBA, and you're invited to be able to come and join us. Go to abovethebusiness.co. Above the business. Co. We have some incredible speakers, not me, some other people that are going to be amazing. We're going to be over 2 days. Love to see you there. 2 hours each day, 11 to 1 Central Time. Go to abovethebusiness.co to be able to register. It's coming up in just a few weeks, August 6th and 7th. I look forward to seeing you there.