04 bus numbers to watch 2

Hi, everyone. We're here on the third and final day of Brian Tracy's Total Business Mastery Seminar here in San Diego. I'm Felicia from the Brian Tracy International Team, and I'm here today to give you a live look at some of the business topics that Brian has in store for today. Brian just finished up talking about one of the most important things all business owners should know. There are certain numbers that you have to look out for. He explains what they are and why they're crucial. And in this brand new segment. Enjoy.

So what is it for your business? So let's look at it now. I've written these down for you and I'll just walk through them quickly so you can look at them. Number one is sales. Of course, that's an important number. But it's not just the sales, of course, it's the profitability of the sales. And the profitability of the sales is after 100% of all expenses, returns break each deficit. I was working with a company, one of the biggest companies in America, and they are suffering between 1.56 and 2.78% theft in their stores throughout the United States, Canada and several other countries. It's a major issue because they're a retail business. Their profits are slim because of competition. They're losing a fortune because they've got shrinkage, internal shrinkage, not shoplifting, internal theft of between 1.56 and 2.78%. And so they are spending an enormous amount of money to find ways to reduce that amount of internal theft. So that's a number that they look at. They look at sales, but sales net of everything. Sometimes, you know, grocery stores, you know how much grocery stores make on turnover? About 3%. They make about 3%. You think, oh, he's a grocery store. Look at all these people checking out. But they make the money because they have high volume, the turnover is high, they have velocity products and services. So it's 3% every time. And that can mount up. But because of competition, they only make 3%. So you can't say it's just sales. Sales is one factor. A second is other revenues of all kinds. You sell this, you get rents, you get dividends, you get something else. The third is cost of goods sold. And this is something that you really need to be meticulous about, all inclusive. One of the things that causes small business people a lot of trouble is they add up all their expenses. They're very correct. They deduct it from their sales cost of goods sold to get a raw profit. But Then they don't include their own labor. 95% of small business owners earn less than $50,000 a year according to the Kauffman foundation of St. Louis. Why? It's because they think they're doing great. But after they've added their own labor, what they could sell their labor for, if they went out and took a private job, they're actually losing money. They could actually shut down their business and just go and work for wages and make more money, have more take home pay. So why do they do it? For the glory. All right, so all inclusive means add every single expense that's attributable to that, including gasoline in your car on your way to work and lunch during work hours and coffee for the coffee machine. All of these costs have to be deducted before you finally reach a profit. Expenses every cost of doing business. Salaries and wages. Usually the biggest single expense in a business is salaries and wages and salaries and wages. As we'll talk about later, if you pay somebody $25,000 a year, that person costs between 75 and $150,000 total to the company. That's why when companies, you see companies in trouble and they lay off large numbers of people and their company goes from billion dollar loss to billion dollar gain the following year. The cost of carrying people are not just the salary and wages. It's the benefits, it's the supervision, it's the office space, it's the management, it's the labor, it's the recruiting, it's the training, it's the time when they're not productive, it's the downtime when they're sick. The numbers, when you add them up are quite phenomenal. What it costs to hire a person, that's like letting one person go and making do with the others. How many times have you read today that companies today have laid off lots of people, but the people who are still there in gratitude for their jobs are much more productive. You've read this and as a result the company is much more profitable with fewer people. Have you been reading this? And it is because those people that they laid off were enormous cash drains. And if they can have their jobs parceled out and other people doing them, then that makes a lot of sense. So lead generation, how much does it cost per lead? Does anybody get ads on the Internet for online universities? By the way, all of these are solicitation services. They use University of Phoenix or IT&T and so on, but they're not registering for, for information from them. What these companies do is they get you to register for information for online degrees, and then they sell Those names for 40 to $50 to a university like Phoenix, University of Phoenix, then turns it over to their telemarketers who used to be mafia leg breakers and pawn shop operators, and they are now being sued, by the way, for billions. Because once they call you up, you've said, well, I might be interested in a degree. They turn them over to the sharks, and the sharks go after you like blood in the water. And they will get you to sign up and pay tens of thousands of dollars for online degrees. And they get huge commissions, which is why they're so good at it. Some of the best paid people. Anyway, here's my point is that I work with an online university that does not have very aggressive salespeople. They pay $40 a lead, and we say, well, how many people actually enroll per lead? They hadn't even calculated it. They were just happy to get leads. They calculated it's 1 in 10 or 1 in 12. So it's costing them between 400 and $500 for a single name to call. Not a sale, just a lead. So one of the questions we often do is we ask people, how much does it cost you per lead? 90% of business owners don't know. They don't know what it's costing to get the lead. And then the next question is, what's your conversion rate? And then the next question is, what size of sale is your conversion rate? What's the average size? Then your next question is, what is your average profit? Net profit, after all expenses per sale at this average rate, per this cost to get this lead? And you know what they find? Oh, my God, we're losing money. The more business we do, the more money we lose. And that's why many small business people often have to take money out of their savings to put it back into their companies to keep their companies going. Has anybody ever had this experience? Yes. It's the most amazing damn thing after you bring money home. And wives do not like that. I can tell you I've got one of those. Okay, number seven, your conversion rate. How many people do you convert from a lead to a customer? Some people, as we said before, go from converting 1 out of 10 to 7 out of 10. Do you know what that does in a person's business life? It's the difference between struggle and being rich in a few years just because they change the conversion rate. And so you have to ask, what is my conversion rate and how can I improve it tomorrow? We'll talk about sales skills and how we can do it. So here's another number. Cost of customer acquisition. Here's a great insight. The role of business is to buy customers. The role of all sales marketing business activity is buying customers. From morning to night, you buy customers. The only question is how much do you pay to buy a customer? You buy customers by using Internet, by using advertising, you buy customers by using your labor. You buy customers by having telemarketers. You buy customers by sending out materials. You buy customers. But in any case, if you can buy customers at a lower cost than the profit that you yield from the customer, you got a ball game. If the cost of buying the customers is higher than the net profits you're yielding, after all expenses, you go bankrupt. Do you know how many companies out there? 95% of small business owners earning less than 50,000 a year. They're working 12 hours a day, six days a week, an average of 60 hours a week, 59 to 60. And they're working, earning less than wages. Why? It's because they don't understand the cost of government customer acquisition. I have an expert come in. They say how much do you pay to get a customer? Do you know how much Groupon pays to get a customer? According to Groupon, they'll pay $60 to get one person who will accept their free offers, who will subscribe and not unsubscribe. They pay $60. Which is why Groupon is what we call a pre revenue company. In other words, you've heard of those, they went out with the dot bombs. They're all companies that are not actually making money because they're spending so much to acquire customers. And by the way, I was in self storage for a couple of years and I finally sold my major self storage to public Storage. They've heard of Public Storage and I wanted to know a little bit about them. So I went onto their website. In their website they published their financials their public company and you go right down to cost of customer acquisition. In other words, cost of one rental for one rental site in one of their units. And they have about 1500 nationwide, $96.42. They know to the penny in terms of discounts, move in allowances, shrinkage, scraping that have to be repaid. They know to the penny how much it costs to acquire a customer. And the they're also the biggest and most successful and most profitable business of their kind in the world because they know their numbers. They know their numbers accurate and they're constantly working to see if they can't find a way to reduce that cost of acquisition. They know exactly how long a person will stay at an average rate in an average self storage bin and exactly how much profit they'll make and how much they can pay after everything to get that profit. When we went up, when we started dealing with them to sell ourselves stories that ate us alive. I mean, fortunately we had some sharks on our side. But these guys are good. I mean, they know their stuff. They come in with their green eye shades anyway, so average size of sale is a good question. When someone says, what's your average size of sale? You've got to know these numbers, by the way, just because these numbers are not your main number to focus on. You have to know the numbers. If you don't know the numbers, you are incompetent and you're going to go broke. You're going to lose your shirt and you're going to end up back at the beginning with 10 or 20 years under your belt, but broke as a poor person. Okay, 10. The average gross profit for sale, you want to know. And the average gross profit margin as a percentage. You see, you can say, okay, I sell it for $100 and I make $40. Now that's the gross profit. Now you deduct all of your expenses to find out how much you actually made net. Or you can say gross profit margin. My gross Profit margin is 40%. All right? How could you improve the percentage? Some products and services have higher or lower percentages. The average net profit per sale. And you have to be really honest with this net. Net, net. If ever you go, by the way, to apply for a bank loan, they'll go over all this stuff and they won't accept your glowing reports. They will want to know. They want to see the numbers. They want to talk to your accountant. They want to know where every number came from and they want it verified. Okay, number 13. The average cost per sale. How much does it cost for products or services to fulfill a sale? You're selling a donut. How much does it actually cost for that donut? Before you start getting into rent, utilities, heat, everything else, average number of times a customer buys. I told you about Morton's and I told you about Easy Hot or Icy Hot. Is every number of times a customer buys is critical because what is this? What if you can satisfy a customer? They buy 10 times a year and you make $100 a time. Net profit. How much can you pay to buy that customer? You can pay $500. You can take them on A trip to Catalina, if you like. If they will buy from you 10 times and you make $100 a time because you pay $500 to buy that customer, you make 500 back, that's 100% return in the first year. Are you with me so far? People say, oh, I can't spend this. But the average time a customer buys is a critical number that you need to know. And all good companies track it. They track it very carefully. So what is the lifetime value of a customer? The icy hot is how much do you earn in profit from a customer over the lifetime that they buy from you? Sales per employee, that's another critical factor. If you have five people working for you, you do $250,000 in sales a year, that's $50,000 per employee. How could you increase that? How could you increase the number of sales per employee gross without reducing your quality of service? Maybe you can get 60,000, maybe get 70,000, and that makes a huge difference. Number 17, sales per day, per week, per month. Have you ever watched the online channels where they, what are they called? The. Where they sell stuff all the time? Yeah, qvc, home shopping and so on and so forth. You'll see that their sales are calculated. Ka ching, ka ching, ka ching, ka ching. They'll tell you how much they're selling per minute. And I know, I've been on qvc and they have you on and they're very, very nice, but they are sharks. And then you make your offer, You've got to build your sale, make your offer. And then the phones start to ring and they. You can see ka ching, ka cha ching, ka ching, ka cha ching, ka ching, ka jing, ka jing, ka jing. You're out. You're out of there. You're off. And they got somebody else in right away. As soon as your number slows down, they pull the plug on you because they're working on sales per minute, sales per second. I mean, they're tough. Sometimes people work on sales per day. Good retail businesses, by the way, always look at how much are we selling each day? How much are we selling each day of the week? Which weeks are better, which weeks are work? How could we increase the sales? Has anybody ever been to a restaurant that has half price wine night, where you get half price wine? What night is that usually Monday? Yes. Why? It's because the restaurant's open, it's fully staffed, the kitchen's going, and the number of people that attend to come are very low. And we can boost them and still charge them more than we pay for the wine. Hey, that's found business. So sales per specific product or service. Some of your products or services are much more profitable than others. Average size of upsell or cross sell. Do you know the car dealerships will often break even on the sale, but they'll make all their money on these chrome hubcaps, the tinted windows, the elaborate sound systems, and so on and so forth. And so the people within those dealerships are judged on how much they upsell or cross sell. And they are promoted, paid, bonus, sent to Hawaii, or fired based on the cross seller upsell because that's the dealer's profit. And so sometimes they'll fire a person, get somebody else in there who's really great at upselling you. Hey, one of the great scams that's out there now is lifelong tires. You buy lifelong tires. Anybody even sold that, you pay an extra $2,500 and they replace your tires for the life of the car as long as you still own it and as long as you live in town. And you know What? They get 50% profit on lifelong tires because nobody ever goes through more than two sets. So they sell it for $2,500. The dealer makes 1,250. That's more than they made on the car. And they so charming. They're almost like snake charmers. They're so charming when they sell you this stuff. Has anybody been through this? You know what I'm talking about. They think it's, oh, it's the best thing for you. Everybody's doing it now. It's just such a good value. We just love it because it's really good for our customers. Yes. And you can see their eyes are going, their mind is going, ka ching, ka ching, ka ching, ka ching. Because they get huge commissions for getting you to buy all the upsells and cross sells. Okay, number 20 is the average number of referrals received. You can break even on a customer if they give you some good referrals. Many people have broken even on customers and get referrals that make them rich. So you can take spend a fortune. People will take their customers on golf junkets, vacation junkets, beautiful restaurants, wine them and dine them and everything. And as a result, they'll give them referrals. And the referrals will be worth 10 times the cost of the entertainment. So we say that pound pennywise and pound foolish, some people are. I don't want to spend this nickel here. But wait a minute. Look at the dollar that that nickel can represent. Average Sales per square foot, that's of course retail. Do you know where the highest square foot retail sales in the world are today? Apple Stores. Apple stores are doing $4,000 a square footage. And every single part of that Wal Mart experience is so carefully calibrated, it's beyond imagination. Okay, number two is return on investment, which is the return on the total amount of money working in the business. When you're looking for venture capital and so on, this is important. Return on equity. That's the return on the amount of money you personally have put in. You may have 100,000 in the business and borrowed 100,000. And you calculate your return on the total. That's ROI. If you calculate your return on your equity, that's ROE, your 100,000 return on sales. This is another factor that people use. How much do we get as a net gross return on sales? Apple gets about 49% return on sales. Why is it the highest market cap of any country company in the world today? It's because of its return on sales. It's beyond imagination. Amount of receivables and how long outstanding Ever go to a bank to look at your financial statement. First thing they look at how much are your receivables? Many companies go bankrupt because the receivable boost become too big and stretch out too long. A receivable that you have not been paid on in 90 days, you will never receive. So people say, well, we've got this receivable from last year. No, it's gone forever. They will never pay you. Banks do not even look at a receivable beyond 90 days and neither should you. I'm out of payables. And when due, how much do you owe relative to the cash that you have? Amount of money in the bank, how much do you have as a cash reserve? Amount of money drawn on your line of credit, that's a critical number as well. And the amount of debt or total owed by the business, that's a critical number. The general trend of various numbers up or down and the number of orders for future fulfillment, you'll notice you read Wall Street Journal. One of the first things they look at, the purchasing manager's index number of orders for future fulfillment. As the economy begins to soften, the number of orders for the future begin to drop. As the economy gets stronger, the number of orders go up. That's a critical factor because that predicts what sales will be, what profits will be, what dividends will be, what returns will be, is number of orders for future fulfillment and number and age of Bad debts. Ouch. Past due payments. And your economic denominator, your most important number. So what do you think is your most important number? And remember, if you don't know what it is, you have to find it. And then you focus on that number. It could be just the number of new sales that you make. It could be the number of return sales, it could be the cost of acquisition, it could be one of those things. But focusing on that number can change your whole business. What is it? Now? This brings us to what I call the profit curve. Now, the profit curve is analyze and identify your most profitable products and services. This is one of the great techniques that are used by companies. They only work with Fortune 5000 companies that have multiple products and multiple divisions. And they will come in. There's a company in San Francisco that's famous for this. It's called Maricon and Associates. And they call them the Maricon Men. And when they come in, they will take every product or service in the company and they will deduct every single expense related to that product or service. And then they will work out which product or service is the most profitable, which is second most, third most, fourth most at the end of the day in terms of net profit. And you'll find that no matter how many products you have, there's always number one, always number two, always number three. So here's what they do. As you see the profit and loss, plus and minus, they'll come in and they will identify your most important, your most profitable products. After everything has been deducted, they will then look at your second most and your third most. Then they find that many of your products and services in a large business with a variety of products and services, you're actually losing money on because the cost of selling them, administering them, producing them, replacing them, is lost in general and administrative costs instead of being broken out penny for penny. So they'll find that some companies are losing money on a whole series of products. So what they do is they come in and with this, they bring this and they give this presentation for the board of directors. And we say, we want to show you what we found out about your business. And each of these bars, of course, has a name, and they run them out like this. And almost invariably, the management boards are shocked. They had no idea. This product over here that they're selling like gangbusters. They're losing a fortune on this product over here that they're selling. Number one. They haven't even given it much thought because it sells what is known as A cash cow. It sells steady, steady. It's literally keeping the business alive. So whenever a company gets into trouble, they bring in what is called a turnaround artist. And what does a turnaround artist do? He does this. He looks at every product or service to see which products or service are actually profitable or not profitable. And then he pulls out his chainsaw and he just does a sever right there and he cuts off all the loss making products or services. Have you been reading the paper? Every week, company comes in, lays off 8,000 people, closes down 23 factories, shuts 400 stores, borders 600 stores, lays off 30,000 people. You reading this stuff, say, yes, they brought in an expert. And he said, all of these units are losing money, just cut them off. And what they're doing is they're like a lead weight on a swimmer. They're causing the swimmer to drown. This is the source of oxygen, the profit making products and services. This is what's killing the company. So I worked with them. I spent three hours on a plane once, plane was delayed. I sitting next to this guy, I said, what do you do? He's a turnaround specialist. And I said, really? What kind of companies do you turn around? He says, different companies, different industries. We're working on a high tech company now. We did a computer company last year. We've got a lumber company and a car company in the, in the, in the production line. I said, you mean you can turn around companies in any industry? He said, yeah, it's pretty much the same. I said, how do you do it? So we began talking and I was really curious and I still remember this. It was such a great conversation because he explained to me how they, I said, how big is your company? Said, with three people. Three people. He said, yeah, we'll go into a company that's losing 50, 150, $200 million. And they will appoint us, me as the president, put my first partner as marketing vice president, second partner as coo, chief operating officer. We'll come in, the three of us, and we'll bring our chainsaws. We'll fire everybody, shut down the divisions. We will cut this off, do all this, turn around the company, go from 100 million losses to 100 million profits in one year, get a 50 million dollar bonus. And then they fire us because they say, because the people who come in and do all this stuff leave a lot of blood on the floor. And so then they'll come back in and they'll fire them. It was prearranged before they came in and they'll announce that a new president is being hired from one of the Fortune 500 companies. And these guys will go on. They get 50 million times dollars and they do it twice a year. And this is what they do every single time. It doesn't matter the business or industry. Some are making profits, some are making losses. Cut off the loss making parts of the company, keep the profit making parts of the company turns around, life goes on, profits go up. On to the next one. Interesting story, huh? And it's true, by the way. I have studied this whole thing about turnaround artists and done talks on it and done seminars on it. I know it very well and it's exactly this. So what is my point? You must be your own turnaround artist in your own company and you must be hard as nails. They say the people that got the company into this situation are not the ones to get them out because they have so much investment, emotional investment in the losers and just want to keep the losers going. And they always have excuses for the losers. This is such a good product and people really like it, but just not enough of them, you see. So what you have to do is you have to become really, really your own consultant and be as cold as death when you look at your products and services and be willing to realize that 80% of your products and services will be gone within five years anyway. Between now and then, don't let them kill you. The time is to cut your losses early. Cut them early, cut them quick. If the product's not working, either turn it around or get out of it so you can concentrate your efforts on your most profitable products and services.

Welcome back to your Total Business Mastery. Backstage Pass. You just watched Brian talk about key numbers in business to look out for in a segment called Business Numbers to watch. What are your thoughts on that? You can let us know by leaving a comment below. Also, if you want to get access to all the segments from this weekend's seminar, you can get instant access by clicking the Get Access now button below. Now, we've got one more Backstage Pass segment for you before we wrap up the entire event. And believe me, you don't want to miss this one. Stay tuned.