Is Your Business Healthy? Try Using The Five Ways System To Check
There are lots of different metrics that can be used to determine the health of a business: Business Plan Review – Gap Analysis of Goals; Gross Margin Assessment; Profit/Loss Statements; Cashflow Statement; Number of Customers; Length of Accounts Receivable. All are extremely valuable and a business owner truly interested in the success of their business should be reviewing these types of statistics on a regular basis. That said, if you are looking for one extremely simple formula to both assess the health of your business and set financial business goals for the future, there is nothing better than ActionCOACH’s Five Ways System.
The formula is incredibly simple and easy to use:
Number of Leads (your marketing efforts)
x
Conversion Rate (your sales process)
=
Clients
x
Number of Transactions (per customer)
x
Average Sale (per customer)
=
Revenue
x
Profit Margin (Revenues – costs)
=
Net Profit
First, if you don’t know one of these numbers in your business, you should automatically conclude that you have an issue that needs to be addressed. Because if you don’t know these numbers, then how do you really know how profitable your business is and more importantly how you can improve it?
Second, the reason why “Clients,” “Revenue,” and “Net Profit” are in black is because they are an OUTCOME of the other five activities. Everyone WANTS more clients, revenue and net profits. The question is: How do you get them? And that is answered by having an effective marketing and sales process, increasing the number of transactions by customer, increasing the average price of your sales to your customers and cutting FAT out of your business.
Written by Coach Josh Slavitt, pictured here with his son Liam
Jim Malski, business coach with Westport CT.-based ActionCoach, offers small business owners tips on networking in order to generate leads, just click on the play button to watch the video:
