The Four Key Numbers to Measure in Your Business Through Record Inflation
Australia, and the world is experiencing, record inflation rates reaching a 40-year high. Many business owners are yet to have operated a business successfully through this type of economic environment. So, knowing your financial numbers together with making smart decisions, is essential to navigating these uncertain times. Below are four numbers that we feel are integral to staying ahead in the game of business in 2022.
Before introducing you to these numbers, let’s delve deeper. You cannot improve anything that you're not measuring already. The sooner you start measuring these key numbers, the sooner you will start to improve them, automatically.
It is also essential to have a target for each of these numbers based on where you envision your business to be.
The 4 Key Numbers:
Gross Profit Required
Now gross profit is what we label your ‘real income’. After paying for the direct costs of delivering your product or your service, mainly your materials and labour, and the other incidentals around it, what are you retaining? Out of every dollar that you earn, how many cents within that dollar, do you preserve to continue operating your organisation as well as ideally, make a healthy net profit?
Your total sales income is what we deem a ‘vanity’ number. Your gross profit is what you're retaining, this is your ‘reality’ number.
Break Even Point
Your break-even is the total amount of income that you require to generate, to cover only the costs in your business. To calculate your break-even, you need two numbers: 1. The fixed overhead amount per month, and 2. you need to know your gross profit percentage. After which, take your overhead amount and divide it by your gross profit percentage. This figure is your total break-even amount. From here, you can calculate how many jobs you require to win, complete, invoice and be paid for, to cover this amount.
Forecast Net Cash Position
The Net Cash Position is your forecast income from sales and jobs completed, less your projected outflows/expenses added to your current bank balance. We suggest that you project this out for 8-12 weeks, based on project completion dates or regular weekly earnings.
The magic number we talk about at PROTRADE United is the number of inquiries/new leads you need coming into your business, based on the conversion rates from your quotes, through to winning the work to generate the income and profitability for the next 12 months. The Magic Number is a target that you, the marketing and sales teams can display to know whether they are on-track/off-track.
So, there you have it, four key numbers that will assist you to understand your current and future business position. For any assistance with these, please be in touch.
Written by Jon Mailer
CEO Of PROTRADE United