Owners/CEOs: How to be a "numbers person" and NOT hate it.
by Joe McKee | Business Mechanic for Hire
Old accountant joke: There are only three kinds of business owners... those who can count and those who can’t.
“But I’m not a numbers person,” is something I often hear consulting with small/medium size business owners.
Business owners should be visionaries. They should care deeply about culture. They should be brave and bold and entrepreneurial-- and most of my clients are all that and then some! But the most successful ones have a stark difference compared to those that struggle-- successful Owners/CEOs know what key numbers to pay attention too and they hone those numbers with laser-like focus.
Too many business owners think being “numbers oriented” means giving up their creative zest, as if just a bit of numbers watching will turn them into a spreadsheet-zombie. No one I know wants to run a business just to stare at spreadsheets (no offense, my accountant friends!).
It doesn’t have to be like that. The most successful business owners I know use just a few fractions on a daily basis to manage their business. Fractions are great because they show how business numbers relate to each other. Cost of Goods Sold (COGS) is meaningless unless you put it against something. And if all you are watching is the bottom line, you are missing 90% of your actual business.
Below is a short list of some examples of key ‘fractions’ successful business owners I know use on a daily/weekly/monthly basis:
Cost Per Hour = [Total Operating Costs] over [Total # of Billable Hours].... gave a software consulting company their “floor” on hourly rate and now they never dip below that number, no matter how attractive the gig might be.
Non-Labor Cost per Unit Sold = [All Non-Labor Related Costs] over [# of Units Sold]... showed a mid-size manufacturer their cost problem was actually spiking energy prices, not their workforce.
Revenue Per Hour = [Total Revenues] over [Total # of Billable Hours Logged]... gave a $1.5 million IT company a way to track efficient service to their clients and uncovered several technicians needed more training.
Revenue Per Headcount = [Total Revenues] over [Total Employees]... gave a small marketing firm a way to know if they had enough revenue to add staff without crushing their P+L. (BTW, for most service firms it’s $9k-$12k a month in add’l revenues to safely add another FTE)
Cost per Client = [Total Costs] over [# of Active Clients]... gave a medium-sized law firm the realization their “annoying and small” corporate client work was actually more profitable than their large accounts!.
Knowing which three to five fractions to watch as a business owner can significantly change the health and wealth of your business. What fractions do you find most useful in your business? I’d love to hear about them and why they work for you.