Assessing the health of your business requires far more than just a healthy cashflow.
A healthy cashflow in your business is in no way the only indicator that your business is necessarily in good form. Hanno Bekker, founder and director of Bekker Attorneys, provides insight into the tools you should be using to assess the wellbeing or your enterprise. You should be doing three things on a daily basis. No matter what stage of your business you are in, you should always strive towards being able to move out or away from the business, with it still remaining healthy without you at the core of it. In order to get to that point you need to look at the following three numbers per day, as well as five factors you should look at on a weekly basis.
The the first three numbers you should look at daily are:
1. How many new or prospective customers did you gain for that day? This is far more important than looking at what your sales for the day were. You should see your enterprise as a funnel – how full is this funnel on a daily basis? It really does not matter what kind of business you are running – you should be winning over new clients all the time.
2. How many existing clients repurchased? It does not necessarily mean that they have to purchase the same product or service as what they did before, but that they now trust you, knowing that you are reliable and that they have made the best possible investment from their side. So they should repurchase within your ecosystem with trust and without hesitation.
3. Do you have cash on hand – if you have to pay something right now, will you be able to do so? Many entrepreneurs make the mistake of overspending when money is available. Make sure you stick to your budgets and do not add personal items to your checkout when purchasing items for the business. These small amounts can very quickly add up to astonishingly big amounts, leaving you cash-strapped.
The five figures that are crucial for you to investigate on a weekly basis are:
1. What is your Total Marketing Cost (TMC)?
2. What is your Cost Per Lead (CPL)?
3. What is your Cost Per Conversion (CPC)?
When taking these calculations into account, you will be able to determine at the end of the day what your net profit is when these costs are deducted from sales that have been generated as a result. Take a look at where your leads convert into sales and make sure you adjust and invest accordingly.
The other factors that should also always be top of mind, include:
4. What is your Lifetime Value (LTV) per client? How much money do you foresee you will be making out of a client during their lifetime? This will help you in making strategic decisions with your time on how much time you should invest in each client. Remember that this type of client might not always be the kind that you should consider valuable only on how much money they spend with you personally, but it might also be the type of client that you receive a multitude of references from. Therefore it is their Lifetime Value and not Lifetime Income that is the vital factor.
5. This leads to what your Lifetime Relationship (LTR) with such a client will be. Time is money. And with only so many hours available in a day, it is vitally important that you spend it with clients that will provide you with the maximum return on investment. Also look at how long it takes you to build this relationship, and how long you expect these relationships to last.