Is Your Online Business Healthy? – FA049

Do you know the vital signs of your business?

Knowing if your business is healthy comes down to tracking and not guessing.

Over the years I’ve asked my clients some very basic business questions and only a handful knew the answers.

Questions like:

  • What’s the Lifetime Value of a Customer (LVC)?
  • What’s your Average Cost Per Acquisition (or new customer)?
  • What’s your monthly break even point or annual break even?

Of course, there are a lot more questions to ask of a business. There really is a lot to know when running a business. So a great way to know if your business is healthy is to set up a Business Dashboard (or Instrument Panel).

First off, Izzy and I aren’t going to recommend any software that can manage your business dashboard since we don’t know your specific needs. And if you are a really small business you are probably going to be doing it the old fashioned way–manually.

This was a much bigger topic than we expected when we recorded so I left out a few specifics on what you should be tracking. This is only a partial list, but a good place to start.

(In no particular order)

  • Cost Per Conversion (CPC): not to be confused with cost per click, cost per conversion is a very important number. If you spend $10 and you get 10 conversions (optin, sale or other conversion), then your CPC is $1/conversion.If you are building an email list, then you want to get optins as your conversion. You want CPC to be low enough to make a profit not just cheap. The idea is to maximize conversions, but balanced with profitability.
  • Cost Per Sale: this goes along with CPC above, but is specifically tracking how much a sale costs the company. This may even be an average between new and existing customers.
  • EBITDA: pronounced ib it duh is your Earnings Before Interest, Taxes, Depreciation and Amortization. What a mouthful. This is your profit–Revenue minus Expenses before you pay the tax man and interest on loans or getting the phantom expense of depreciation and amortization. Your actual Net Profit is revenue minus expenses including EBITDA.
  • Lifetime Value of a Customer: this is a very important number. It helps keep you focused on retaining customers instead of focusing only on getting new ones. When you understand just how valuable a customer can be to your business, you’ll go out of your way to keep them.

I really wish I could go even more into the idea of a Business Dashboard so hopefully Izzy and I will create in-depth training on this topic. Listen to the show and get an understanding of how a Business Dashboard can let you know if your business is healthy and how to optimize its health.

Enjoy your Foolish Adventure,

Tim and Izzy

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9 Comments

  1. IFR – instrument flight rules as opposed to VFR – Visual flight rules

    I like the metaphor. Without IFR you can only fly under VFR – that is in nice clear weather where you can see exactly where you’re going.

    You’ve talked about autopilot too – that’s another cool metaphor to think about. Flying is much more fun when you don’t have to spend every second with your hands on the stick – much nicer to be able to let go and watch the clouds go by for awhile.

  2. After listening to this podcast, I created a “business analytics” spreadsheet based on my revenue and expenses. It’s amazing to be able to visually see trends in different types of revenue and expenses to see where one’s money is really coming from and really going to. I also plan on adding some other stats, such as twitter info, newsletter subscribers and site traffic soon.

    1. That’s awesome! You mention something here that I completely forgot to talk about and that’s cashflow–where the money is coming from and going to and at what times. This is often overlooked by digital info-product companies since they don’t companies since they don’t carry inventory, but it is still very important to know your cashflow.

  3. Hi guys, First off just wanted to let you know that although I haven’t been commenting, I’ve listened to EVERY episode and I still love it. Just wanted to share something about tracking with Google Analytics.

    A lot of people don’t realize how much you can customize and track with Google Analytics. I’ve recently gone through and started optimizing my Google Analytics account and here are some of the things you can track:

    1. CONVERSIONS. Yep, by setting up goals, you can track conversions on just about every process. I can see what percentage of people opt into my aweber mailinglist, what percentage of those confirmed, and then what percentage proceded to my download page.
    2. Sales. You can track how many people (and what percentage) purchased your product and how much money you made from each sale, and in total, for any time interval.
    3. Funnels. You can not only monitor your sales funnel, but you can also get a visual representation showing you where people are coming from, where they land, and where they go at every stage of your funnel.
    4. Campaigns. For all of the things mentioned above, you can see how each of your marketing campaigns are doing (Free or paid) in terms of the aspects of your business you are tracking.

    The great thing is that you can set up your Google Analytics dashboard to show the specific aspects of YOUR business and nothing else.

    I used to use a spreadsheet dashboard customized to my business, but I’m finding that G.A. is much easier and does everything. For people that have their own product on their own website, it works even better because then you can track EVERYTHING.

    The only thing you can’t really track in G.A. is your expenses. Since that’s not directly on your site.

    Sorry for the long winded comment, but I’m just so amazed by the Free stuff you can get in G.A. It’s just AWESOME!

    1. Welcome back and great info, thanks. GA is really powerful and not being utilized by most businesses or the only thing being used by a business and then they miss out on tons of important data.

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