Measuring what matters
Recently, I got a panicked email from a client saying business was way down the prior month and lamenting that they never should have raised prices.
Of course, there is always cause for concern when sales are down from historic trends. And increased pricing may have impacted sales with some (price sensitive clients) opting to go with other sellers.
It may also be true that
Some purchases shifted to another time on the calendar - accelerated or delayed but not lost
There was more new business in the mix
The whole sector experienced a slow down
It's time to look at sales and marketing tactics and investments
And in this instance a price increase was necessary because the old pricing model was not profitable. So having more sales with little to no profit margin wouldn’t be much better than having fewer, more profitable sales.
I share this to say, in your business there are lots of variables impacting revenue, expenses, cash flow, and profitability. Often, the most obvious explanation for what’s going on is part of the answer but not the whole answer.
This client is also rebranding, updating their website and focusing on a higher-end niche client. Those shifts can impact revenue and profit in the near term. They will need to make changes to their sales and marketing, which may cost more, impacting expenses in the near term and revenue generation long term. And they are adding a new line of business that can help them tap a new market.
Lots of moving parts.
Which is what I tried to remind them of when I replied. But it can be hard to step back and take a second look when things feel like they’re going the wrong way.
That’s why it's important to have ways to catch changes before they show up on your income statement and freak you out!
You might (regularly) look at the
Number of scheduled renewals three months out
Number of new inbound and outbound inquiries
Close rate (number of jobs bid vs closed)
Average sale or contract size
Customer and/or product mix - what’s selling and who’s buying
Website analytics
Customer feedback
The key is knowing what indicators matter most for YOUR business. What’s gonna give you the best idea of what’s going on or at least alert you to where you need to be looking.
Think about what information will help you know if your revenue, expenses and profit goals are within reach or if you need to make some real-time changes.
Be intensely curious about what’s going on in your business and industry.
Bring your awareness to things you don’t like doing in your business and whether those areas might need more attention to drive results.
