Here are 18 numbers that every small business owner should know (and track) in their business...
We all have stories about ourselves that stop us living to our full potential.
One of the stories I hear most commonly in the small business clients I help is "I am terrible with numbers."
Now, I've worked with hundreds of businesses and I've never actually met a business owner who is terrible with numbers, in a way that would truly jeopardise their ability to own and run a business.
But, I've definitely met a LOT who let their story about "being bad with numbers" hold them back from being the business leader their capable of being.
And that's what led me to write this cheat sheet for you today of 18 numbers that every business owner should know and track about their number.
Because here's the bottom line:
Business is ALLLLLLL about numbers!
Sales and profit success is about percentages, magic metrics and data.
So, if someone truly wants to grow a profitable business and achieve their income goals, they HAVE to learn to embrace numbers.
It's not a case of IF they should know their numbers.
It's a case of how well they know their numbers, (and mostly, how well they understand how to improve their numbers.)
So let's dive into numbers...
10 Sales Metrics every small business owner should know:
Total sales revenue
How many sales have you made in the last week, month, year?
It all starts here really.
All the rest of the metrics play off this one...
Your accounting and cart software systems should give you this number right up the top. Just be aware that most accounting systems, like Xero, show your sales figure without sales tax. Whereas online cart systems usually show it as a gross figure, including tax.
This can confuse people as to why the numbers between their systems don't match.
Owner take home pay
How much money do you want or *need* to take home from your business?
So many business owners treat their own pay as an after thought. Not to mention - it can be confusing as hell to figure out:
Like, should you even take drawings or a salary?
And how much should you take?
Well, those are questions for your accountant so I can't help you with that.
But, I can remind you that being able to pay yourself from your business is ESSENTIAL!
Despite this, 88% of small business owners earn less than they’d earn in a job working for someone else.
Which breaks my heart!
The solution to more people paying themselves more from their business is complex.
Because it really depends what's wrong.
But, the first step for most people is working out how much money they actually need to live on to support themselves
(aka their personal budget).
Then, to ensure their business budget, money management system, and pricing is set up to allow that figure to be possible. Then they need a great marketing plan and promotion plan to ensure they have the number of customers they need.
Total fixed expenses
The next step is to work out your business fixed expenses... Your fixed expenses, sometimes called 'overheads' are the ones that don't change as your sales increase.
They include things like:
Power, phone, subscriptions, machinery or technology purchases
It's important to know how much these are per week, month or year so that you can use this "magic metric" to work out what your minimum viable amount of sales revenue is.
This amount is simple to work out. It's just data entry really. All you need is a budget template....
Gross Margin is the percentage that your business gets to keep after the cost of sales (or COGS) are removed.
For example: if you sell a backpack for $100, but your materials and manufacturing labour to produce that backpack cost you $50,
then your gross margin = 50%
This is an important number to your business, because if it's a low %, you likely need a really high volume of sales to make enough profit to pay yourself and all your fixed expenses.
What's your average gross margin?
It can be a difficult number to work out, especially if there are lots of different variables that go into making or producing your products.
That's why I created pricing calculators to help.
Average transaction value
The average transaction value is one of my favourite metrics to track (and try to improve)!
It is the average of how much much your customers spend with you, each time they buy from you.
Once you know this figure in your business, you can use it to make predictions about how many sales you need to make your sales goal, and also use it to work out how much profit you make per sale.
You can work this magic metric out by going:
Total amount of money you made in sales revenue
/ divided by
Total number of sales made
In a period.
If you made $112,000 and made 2050 sales, your average transaction value would be:
$112,000 / 2050 = $54
You can then use this to work out how many sales you need, on average, to make your goal.
If your goal is $250,000, then you would go:
$250,000 / $54 = approximately 4629 sales
Knowing what this figure is, makes it much easier to create a marketing plan to make it possible.
Customer purchase frequency
This magic metric is how many times in a fixed period of time (like a year or since you started your business)
a customer purchases from you.
Once you know your customer purchase frequency, it can be used to help you calculate how much each customer spends with you in TOTAL.
You want to try to always be improving this metric.
Because it's easier (and cheaper) to sell again to an existing customer than it is to find a new customer.
Which means improving how OFTEN your customers purchase from you, can help you improve your profit.
One of the most effective methods of improving your customer purchase frequency is to send regular emails.
Email marketing is so low cost and gives the best return on investment of any marketing channel
($44 returned for every $1 spent which compared to advertising is significantly better!)
Another way to improve it is to have re-targeting advertising always running to keep your business top of mind.
Customer lifetime value
This is another one of my favourites...
Customer lifetime value means how much money your customers spend with you, in total.
To work it out, you need to know your average transaction value and your customer purchase frequency
Then, you times your average transaction value by your customer purchase frequency.
For example: if your average transaction value is $75 (which is often about average for the product based businesses I work with in NZ), and your customers buy off you on average 2.5 times,
then your customers are worth (on average) $75 x 2.5 = $187.50
Knowing this magic metric, in addition to knowing your profit per sale (which I'll talk about next)
can help you work out important things like:
How much can I afford to spend on advertising to find a new customer and still make a profit?!
Average profit per transaction
How much money do you get leftover, every time you make a sale?
This figure is your profit per sale.
Knowing your average profit for sale is unbelievably useful because it helps you then make future predictions.
Like - how many sales do I really need to make to cover my:
- Fixed business expenses
- Cost of sales
- Transaction fees
- Advertising costs
- And actually pay myself a fair income!
But it can be difficult to workout. Because there are a lot of moving parts. Which is why I created the Key Metrics and Sales Goal Calculators:
This pack of calculators will help you work out 7 important metrics in your business and your profit per sale. Then use those to predict how many sales you need to make, to reach your goal income.
They start at only $25.
What an important metric this is! Except it can be confusing, because there are multiple different types of profit. Here I'm really talking about net profit.
How much money was left over at the end of each week, month, year after you've deducted cost of sales, expenses and tax?
Number of sales required to make goal
And finally - I recommend you work out:
How many sales will it take you to make your goal?
To work this out you really need to know all the sales metrics above. In other words there are a lot of different parts to working it out (and it will only ever be able to be an estimate)
knowing this helps you avoid burnout or heartbreak.
So it's worth persevering to learn all the rest of your magic metrics so you can work it out!
4 important cost of sales metrics every small business owner should know:
Cost of goods sold
Every time you make a sale, how much does it cost you to make that sale in products or services to deliver the sale?
This magic metric is sometimes called "cost of goods sold" too.
This is a really important profit metric. Because if your cost of goods sold is too high, your business might never make a sustainable profit.
Many people think it only applies to products based businesses, but it's actually just as important for a service based business too!
Especially if you have a team!
So, what is your cost of sales?
It is the amount it costs you to:
- order in products (if you're buying them from someone else)
- make the products, including materials AND labour (if you manufacture them)
Or, if you're service based, it's:
- How much does it cost you in labour fees to deliver the service.
If you are manufacturing or delivering the service yourself - you MUST include a labour cost for you.
Forgetting to price in their own labour is one of the most frequent mistakes I see solopreneurs make which sees them unable to scale!
This magic metric is a really important profit metric. Because if your cost of goods sold is too high, your business might never make a sustainable profit or be able to scale without creating burnout (or debt).
I have calculators that can help you work out your cost of sales inside step 4 of my course: The Profit Formula.
Average freight cost
This one is for my product business friends...
When was the last time you worked out how much it costs you, on average, to send a parcel to your customers, to make sure you're charging enough for freight?
If it's been a while - this is your reminder to take 2 minutes to work this out today. Because not charging enough to cover your freight expenses is a common way to eat into your profit!
When I do this exercise with my clients, so many of them instantly go and put their freight charge up!
You can quickly find the average by going:
Total spent on freight
/ divided by
Number of orders.
If you spent $3445 on freight for 500 orders:
Then $3445 / 500 = $6.89 freight cost on average per order
Remember to consider the cost of your actual packaging and add that in.
And now you can answer the question: Am I charging enough for freight?
Average transaction fees
Transaction Fees are an avoidable cost of doing business.
Your average transaction fee metric is:
how much do you pay on average in fees to places like PayPal, Stripe, Layby, Afterpay, Zip Pay etc?
I find that this cost is often overlooked when people set their pricing or budget.
But it's a cost of making a sale, so we MUST make sure our pricing accounts for transaction fees. Otherwise, these transaction fee expenses eat into our profits.
You can work out your average transaction fees by:
adding up how much you've spend it transaction fees
/and dividing that by
how many sales you've made.
Ad spend cost per purchase
I wish everyone who was running ads knew how much they were prepared to spend in ad spend per purchase BEFORE they started running ads! Because otherwise it potentially leads to a lot of lost money in ad spend, and disappointment.
So if you are running ads, or *want* to be running ads,
then please work out how much you're prepared to spend ASAP before you sink a bunch of money into ads you can't afford...
If you're already running ads, then you can work out your ad spend cost per purchase by:
Total ad spend
/ divided by
Number of purchases from ads
But, to work out how much you're PREPARED to spend to get a purchase, (or how much you can afford to spend and stay profitable) you need to know:
- Your average transaction value (or the price of the thing you're selling if it's only one thing)
- Your average profit per sale
Then, you can consider:
"How much can I afford to spend on ad spend, per purchase, and still make a profit"
Of course, there are other variables to consider too...
If you sell a membership or a consumable item, you might decide to make less profit up front to secure the customer, with the knowledge you'll get the profit back over time.
But, irregardless of what your strategy actually is - the most important thing is that.you.have.one!
I have a whole bunch of calculators available to help people with ad spend.
From - working out how much they can afford to spend per sale, to making predictions about how much ad spend they'll need, to achieve their sales goal.
So reach out if you would like some help with this.
3 marketing numbers every small business owner should know about their business:
Website conversion rate
Many small business owners are SHOCKED when they hear that the average conversion rate for a website is only 1-2%.
(Including me - I was too)
But, what does your conversion rate even mean, and why is it important?
Your conversion rate describes the percentage of people that come to website and achieve the goal.
For you that might mean:
- Buying something
- Booking a meeting
- Calling for a quote
If the average conversion rate is 1-2%, that means: For every 100 people that visit your website, only 1-2 of them will purchase/book/make the goal.
That means you probably need a LOT more traffic to your website than you think, which is why this is a magic metric to know about your business.
Let's say for example that you want to sell 50 things...
If you have a conversion rate of 1%,
that means you need to get 5000 people to your website to sell 50 of them.
If you PAID for all that traffic at $0.50 per click, that would require $2500 in ad spend.
If your conversion rate is 2%,
that means you need to get 2500 people to visit your website.
If you PAID for all that traffic at $0.50 per click, that would require $1250 in ad spend.
At 3% that's 1667 hits and $833 ad spend
Can you see why this is an important metric to track and measure?
So, how do you work out your conversion rate?
- You need your website to have analytics capabilities.
I recommend Google Analytics which is free and easy to install (check out this article here for help understanding how to use it).
- You need to track your conversions
(how many people achieved your goal).
It's one of your most basic sales metrics to work out, and knowing it helps you make predictions about how much traffic (and/or ad spend) you'll need, to meet your income goal. So it's very important to know!
Number of website hits
How many people have visited your website this week, month, year?
Knowing this number helps you work out if you have a traffic problem (which is related to how good you are at marketing), or a conversion problem (which is how well your website generates sales).
This is helpful to know - because you don't want to be paying for traffic to a website which isn't performing well!
And you also don't want to be thinking "why is no one buying off my website" when actually the question is "why is no one *visiting* my website!"
I also show how to find this number using Google Analytics here.
Average email open rate and click through rate
Many of the small businesses I work with have an email list, but aren't really emailing their list as regularly as they *need to be.
When I say *need*, I mean:
*need to be, statistically speaking, to help them achieve their sales goals and keep their customers nurtured.
So, how often do YOU *need* to email your list? Let's work it out...
What is your open rate and your click through rate?
Your open rate is the percentage of people who open your emails, and
Your click through rate is the percentage of people that click through to view your offer.
Remember back a couple of metrics when we talked about conversion rates?
Well, your conversion rate applies to your email marketing too.
Except your email marketing conversion rate is often much greater than 1-2%. Because they're usually people that already know and trust your business.
So we're going to assume it's 5% for this example...
If you have 1000 people on your email list and 20% of them open your email
(btw industry standard open rate is around 18-25%)
Then that means 200 people opened your email.
If your click through rate is 2.5%
(a typical click through rate is 2-5%)
then that means 25 people clicked through to view your offer
If 5% converted and bought, then that's 1 sale.
Because your conversion rate is not 5% of your entire list - It's 5% of the people that clicked!
That's pretty humbling isn't it.
So think about how often you're sending emails, and if it's enough...
Of course, there's SO MUCH more to successful email marketing than statistics.
So by NO MEANS am I suggesting that you start emailing twice a day so that *statistically* you can bring your sales goal closer to you
(-because that will likely have the opposite effect!)
I simply wanted to emphasise how important it is to know your numbers, so that you can use them to help you work out if your sales expectations are realistic or not.
Because I've got the t-shirt that says "disappointed with my sales!" And a big part of that was not understanding my magic metrics so that I could have more realistic expectations and make a better plan!
How many of these 18 magic metrics do you know, understand and track?
Want to play Magic Metric Bingo to work it out?
It's a fun way to figure out how many of them you still have to learn and track and it comes with all the definitions above, so that you can print it out and keep it handy.
If you want to have a successful business, there is no escaping learning your numbers, because business = all about the numbers.
But, many small business owners find the numbers confusing, and this leads them to avoid thinking about them. So, if you find it difficult to understand them, you're not alone!
Unfortunately, there's no one easy many, to help business owners learn what they need, all in one place. Which is why I created The Profit Formula course...
Introducing The Profit Formula...
Make sure your business is financially ready to scale, (so that you don't run out of fuel before making it to your destination) with my 5 Step Profit Formula course.
Inside you'll get:
- The Money Lingo Cheatsheet - keep this next to you while you work, and never get stuck with what a number means again.
- The Budget Project - get control of your expenses when you create a business and personal budget.
- The Profit First Project - learn how to manage your money, so that you never have to scramble to pay yourself or tax again.
- The Pricing Project - work out if your pricing is profitable
- The Sales Goal Calculator - put everything you've just learnt together to find out how many sales you need to make to achieve your goals.
About the author:
Kat Soper is the Founder and Head Trainer of The Helpful Academy Online Business School.
Kat is passionate about helping start-ups and small businesses succeed and achieve their business goals so that they can achieve the lifestyle they desire (and deserve).