4 Pieces of Advice for Q4

As I am sitting here nearing the start of Q4 in another unusual year, I’m thinking about our clients and what has made some more successful than others over the last year and a half.?

After some ruminating, I find myself making a few observations. Working as an outsourced CFO with many different companies in multiple industries, I’ve seen where each CEO has focused their attention and how certain things have affected each company. In the spirit of learning, I want to share some of my observations with all of you.

You need to truly understand your numbers.

We worked with over 40 companies last year, and I would characterize approximately a quarter of them as prosperous or very prosperous. The CEOs of these companies behave differently than the other CEOs who were less successful. For one, they know their numbers in their own way and understand how to take those numbers and drive company behavior to maximize long-term value.? In addition, they are brutally honest with themselves as to how they are performing and what they need to address to improve performance.?

Metrics are everything.

Great CEOs know which metrics are predictive of success. They focus the organization on which goals need to be adjusted as the business changes. And they constantly review these metrics and make adjustments as needed.? In many of these organizations, almost all employees know the metrics and how they achieve the desired result.?

Margins are everything, too. The success of a business can be tied to its gross margins. That said, it should go without saying that margins are critical. Like metrics, the companies and CEOs paying consistent attention to their margins experienced the most remarkable success last year.

Customer feedback is critical.

Incorporating customer feedback will go a long way in building and maintaining client relationships. As such, you should take the time to listen to customer feedback. Many companies achieve this by asking their clients to provide a net promoter score, responding when appropriate.?

The simple question of “on a scale of 1 – 10, how likely are you to recommend our product or service to a colleague?” gives your customers a chance to provide honest feedback. It also lets your team know how they are doing.?

If a customer terminates the relationship, think of that lost customer as a valuable learning opportunity. The best companies analyze why customers leave and use that information to improve their products or service. Sometimes, it may turn out to be as simple as a bad fit, but more often than not, there is room for improvement that will positively impact your remaining customers and the customers to come.? If it does turn out to be a poor fit situation, think about your remaining customers. Are there others that are similar to the lost customer that could become a loss down the road?? More importantly, are there similar prospects in your pipeline that may not be good fits down the line??

Finally, our best companies talk about NPS, customer satisfaction, and why they lose customers at the board levels.? If you are not discussing these issues at your board meetings, maybe you should consider adding them to the agenda. The companies that do all of this, and do it well, continue to improve their renewal rates. Also, keep in mind that it costs roughly 500% more to acquire a new customer than to keep a current one.

Unit Economics is key.

CEOs should obsess about unit economics. And they need to better understand the economics behind acquiring, servicing, and maintaining customers.?However, the unit economics may paint a different story as the company is profitably adding and servicing customers and needs to scale the business. For example, early in their lifecycle, many technology companies may suffer considerable losses due to development and the build-out of the executive team.

Understanding your unit economics allows you to determine margins and break-even points. For this reason, unit economics becomes a way to define the success of a business. If your “unit” is a customer, you can calculate the customer acquisition cost (CAC) and the lifetime value (LTV) of that customer. These metrics will then allow you to assess the state of your business.

Using unit economics, you should create a customer P&L. If that analysis is favorable, you should continue to put gas on the fire and grow the business. If the analysis is unfavorable, you should review your pricing, margins, and customer acquisition costs to see what needs to be refined to create more profitable customer relationships.?

[How to Make Sense of Your Profit and Loss Numbers]?

If you haven’t been thinking strategically about business finance, now is an excellent time to start. That strategic thinking will help you implement some of the practices and procedures above and will likely set you up for success in 2022.?