CFC #008 - Money-Maker Metrics, Part 1

Do you feel like you should be getting more from your business?

Are you worried that you’re missing something significant?

And if you could just figure out what to do, you could unlock the results you want?

The results you deserve.

For all of your sacrifice and hard work.

You’re not alone in feeling this way.

I’ve worked with many business owners who feel similarly frustrated and confused.

The solution is to get clear on what you need to do, so that you can do it.

And the best way to get clear is to have Financial GPS installed in your business.

Over the last 4 weeks, I’ve shared simple steps you can take to put your Financial GPS to work.

If you missed any of those newsletter editions, you can check them out at the following links:

• Step 0: What is Financial GPS?
• Step 1: How to set better financial goals.
• Step 2: How to have better financial reporting to get better results.
• Step 3: How to avoid 4 dangerous forecasting myths to reach your financial goals.

Today, I want to share the secret sauce supporting the whole system:

Metrics.

Master your metrics and you’ll unlock incredible financial possibilities for your business.

Read on!

Why metrics matter

What gets measured gets managed.

Metrics are the foundation on which your financial GPS system is built.

You can have a great Financial GPS system, but if you pick the wrong metrics to monitor, you won’t get the results you want.

And you could potentially damage your business and your financial future.

I know that sounds drastic, but it’s true.

You can’t do everything.

Each thing you choose to give time, energy, and attention to takes the place of something else you could have chosen instead.

So, if you waste your resources on the wrong things, they’ll take you further and further away from the right things.

The things that could get you what you want.

For example, say you want to increase your take home pay.

If you pick revenue as the metric you’re going to track, you’re more likely to do whatever it takes to boost your revenue.

This may include offering discounts and deals on your services that boost your sales but hurt your profits.

Lower profits mean less money is available for you to take home.

Focusing on the wrong metric took you away from your ultimate goal:

Putting more money in your pocket.

Wise rule of thumb for metrics

It’s also possible to have too much of a good thing.

Too many metrics can get muddled, which defeats the purpose of using metrics to manage your business.

So, in addition to avoiding the wrong metrics, you also want to avoid tracking too many “right” metrics.

Here’s a 2-step checklist you can use to do this well:

1. Tie each metric to a specific goal. (Ideally one metric per goal.)
2. Pick the metric that has the greatest impact on achieving that goal AND that you/your team are able to directly influence through your daily activities. (If it’s outside of your control, it’s not an effective metric to help you manage your business.)

Now let’s talk about 4 financial metrics you must know at a minimum to get the results you want:

4 Must-Know Financial Metrics

1. Revenue - sales of your services or other offerings. Shows how much incoming money your business operations generate to work with before factoring in costs.
2. Gross Profit - Revenue less cost of sales. Shows how profitable and efficient your service delivery is. Can indicate how effective your pricing and customer-facing operations are. Does not include costs related solely to running your business (e.g. marketing, administrative)
3. Net Profit - Gross profit less operating costs, interest, and taxes. Shows the overall profitability of your business after considering all expenses. Indicates financial health and long-term sustainability.
4. Cash - self-explanatory. The life blood of your business. 82% of small businesses fail due to poor cash management.

What’s next?

These metrics are important, but they have a key limitation:

They’re all lagging indicators of performance.

You need to know them, and they can help you manage your business.

But, it’s important to pair these lagging metrics with leading metrics that you and your team can directly influence through your daily actions.

Next week, I’ll share some leading metrics related to the 4 must-know lagging metrics.

These will make it easier for you to take direct action on getting the financial results you want and avoiding potential financial pitfalls.

You won’t want to miss out.

Stay tuned!

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To your success!

Brian