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MARKETING CONSULTANT The 7 Numbers That Drive Your Business BY SCOTT STROUD First, let me say that there's really only one number that you need to see to know how you're business is doing: that's the amount of cash you have available in your bank account. Most business owners and managers place their focus on making a profit. Profits are great, but cash is better. Without cash you can't pay your bills or pay yourself! Without cash – or the ability to generate cash - you're dead in the water. Second, let me say that I have lived most of my life completely blind to the differentiation noted above. As a result, I have often found myself doing profitable work, but not having the cash I felt appropriate for the work my compa- nies generated. Then I met Jeff. Jeff Prager is a CPA turned entrepreneur and founder of Backroom Man- agement Services in Denver. When we first met at a builders show inOrlando, Jeff had sold his $26 million construction company (before the crash!) and was speaking at the conference on this very topic – how to manage your busi- ness, and your cash flow, by watching just 7 Key Numbers. What I learned changed everything about how I handled the backend of my business. With Jeff's permission, here are his 7 Key Numbers that you need to watch closely: #1 is the Number of Leads coming into your funnel. Since all income comes from cus- tomers, you need a consistent, healthy stream of new prospects entering your pipeline. The Number of Leads measures this stream and will tell you how effective your marketing is. The better you are at getting new leads, the faster your business can grow and the healthier you'll be. #2 is your Sales Conversion Rate – the number of leads that actually become cus- DECEMBER 2012 26 THE JOURNAL tomers. This number will tell you how effective your sales process is. This is a critical part of your income stream. Since most of us love to do what we started our business to do – but hate to sell, this is a number we tend to overlook. Don'tmake thatmistake! Toomany businesses are great at marketing and poor at sales. Re- member this, no sales, no money. #3 is your Customer Retention Rate – howmany current customers will continue to do business with you after the first transaction. The more customers you keep, the less new cus- tomers you need to get. That could lower your costs per transaction. When you form a rela- tionship with a customer, are they a 'customer for life?' Or do you think of it as a more short- term relationship? Even high-ticket buyers, like homebuyers, should be looked at as long- term repeat buyers. #4 is your Average Number of Transac- tions per customer. This measures how many times during a given period of time will a cus- tomer do business with you. Again, too often we think in terms of one big transaction. But consider your local auto dealership. They sell a car for a large dollar amount, but they offer parts and service that keep buyers coming back on a regular basis. In fact, that dealership makes more on the subsequent transactions than they do on the sale of the vehicle! Home- buyers purchase a home, but then often there is remodeling, additions or even routine mainte- nance that can add to your bottom line. Number 5measures yourAverage Price or Ticket per Transaction. In any given visit, how much will each customer spend on your goods or services. If youmeasure that, you can begin to answer the next question, "What can I do to make that number bigger?" Is it by rais- ing your prices or selling more goods and serv- ices every time you work with that customer. So, numbers 3 through 5 tell you the lifetime value of a customer. If you're not totally in tune with that, then you're really not thinking long term. Measure and manage your lifetime value of a customer and you'll see your business steadily grow. But, there are twomore numbers you need to