You need to know the numbers

by Dr Richard Norris MBA

Last Spring I was sitting in the smoke filled office of a curtain wholesaler listening to him talk and wondering how I could extract myself from his clutches. I had booked the appointment the previous week to see if he might be interested in my Business Coaching services but, one hour into the meeting, I was thinking to myself ‘how can I get out of this room’? He had deflected all my questions and he was taking great delight in telling me of his 20 years spent in the rag trade and how well he knew the industry and what he did not know about curtains could be written on a matchbox.

His size 10 shoes were plunked on his desk and he was leaning back in his chair as if to say ‘try me with another one of your questions’. With one final throw of the dice I asked him, “How much profit are you going to make this year?” Through the smoky haze I detected the first flicker of doubt in his eyes. I pushed ahead with my questions with increased confidence.

“How many curtains do you have to sell every week to break even? Do you have a current business plan? Do you prepare monthly accounts?” Each question was met with a blank look or a shake of his head. Ten minutes later he had signed up for 12 months of coaching. That afternoon confirmed for me what I always believed about business. No matter how well you know your business, unless you understand and measure your numbers, you will struggle to grow any business to it maximum potential.

The old saying goes, unless you measure it, you can’t improve something. Imagine going to a football match and finding out that nobody was keeping score. The crowd didn’t know the score, nor did the referee or the players. The coaches could not decide on tactics and the crowd would not know whether to celebrate victory or be disappointed by defeat. Playing sport without keeping the score is pointless. Having a business and not keeping score is equally pointless. Sound familiar?

A couple of examples will illustrate this point. One previous client owns a furniture shop, which is located in the suburbs and off the nearest road. For the first four weeks they told me that sales were low because nobody knew where they were. I got them to count the number of people who visited the shop and in the first four weeks approximately 1,200 people had called into the shop, and only 70 had purchased. Their conversion rate was just 6%; so for every 100 people that called into the shop, 94 had walked back out without buying anything. This information totally changed their perception of the business. In the weeks after that they focused all their attention on the customer and their conversion rate went up to 13% and the sales doubled.

Another client was spending £3,000 per week advertising but he did not measure the effectiveness of these ads. I helped him to introduce a system that quantified how much sales each advertising medium produced. Five weeks later he realised that half his advertising was not working. He switched some of his advertising away from those papers that were not working and moved them to radio. So far he has saved in the past 6 months £40,000 on his advertising and his sales are up 16%.

Another client of mine was a restaurant owned by two brothers. One of the key figures for restaurants is average sale and when we measured this figure it was below the industry norm. We discovered that team members were not pushing the add-ons like wine and dessert; so, we arranged some training and wrote procedures for them to follow. The brothers sat back content that the problem had been solved.

However a few weeks later the average sale had not increased so we discussed the situation and decided that more training was required. We organised two hours training weekly for eight weeks and the average sale increased by 36%. If we had not been reviewing the average sale every week, we would have assumed that our original response was effective and the average sale would never have increased.

So the message is relatively simple – no matter how well you understand your business, if you don’t know your numbers, the business will never perform at its peak. This applies whether you are selling curtains, furniture, services, food, cars or whatever. There are generally 5 key numbers that you, as business owners, should keep score by – numbers of leads, conversion rate, number of transactions, average sale value and your margins.