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.
- 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
You can also right-click on this link to save the file to your computer.