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SYNOPSIS: All about you only make what you measure from the series of podcast “Business in a Nutshell” by Kwame Kuadey.
Check out the blog posts and further resources on https://www.dropbox.com/s/ug29k1teyjy6om4/You%20only%20make%20what%20you%20measure.mp4?dl=0
Hi everyone and welcome to today’s podcast. The topic for today is you only make what you measure. In essence I’m going to be talking about why it is important to measure for results, to measure for success. There are several metrics that you need to measure in your business depending on the type of business that you’re in that you need to look at. You need to look at revenue, you need to look at profit, you need to look at customer position costs, conversion, marketing, web analytics, there’s a whole cost of things even turnaround time and depending in your industry there are several metrics and data that are important to you. But today, I’m going to isolate all that and talk about one specific metric. Why it is important to measure revenue. There are several reasons why you should set goals and measure the revenue that you’re making because some of us will just put something out there and say I’m going to do $1000 sales this year. How are you going to get there if you don’t measure what you’re making, you will never make it. I’m going to walk through five reasons why it is important to measure your metrics, to measure revenue and monitor it and why you only make why you actually measure.
- It helps keep you honest. What do I mean by that? If let’s say that you are now that this year you are $1M in sales. And last year, you did $100,000 in sales. The first question is how you are going to get from $100,000 to $1 M. Let’s say that you have a retail shop. You sell coffee and each day 20 people come in and buy coffee and out of those average 20 people a day, you were able to make $100,000 for that year. Then the following year, you announce that you are going to get $1M in sales. The question is, how are you going to get there? What is going to change in your effort that is going to get you from $100,000 to $1M because those same 20 people are not going to come in everyday and get you from $100,000 to $1M? Something has to change. By setting goals and measuring, it keeps you honest, it keeps you in making sure that realistic goal and you’re holding yourself accountable for realistic goals and not just putting something out there and just hoping that it will happen.
- It helps you get an idea of how cyclical your business is. It helps you ride your business cycles better. Depending on the business you’re in, there may be certain seasons where a lot of your sales happen. For instance, in giftcardrescue.com, between November and February, we’re able to make 45% of our revenue. Out of 4 months of the 12 month year, we get 45% of our business there. We always get up to make sure that we maximize revenue during those 4 months and make sure that for the goals that we have set for that year, we know that those 4 months, this is what we’re going to get. We make sure that we put in all the effort to be able to maximize that period because for the gift card business, during November to February that’s when it’s a real boom. One because people are selling their gift cards so that they can get extra money to buy Christmas presents and then after Christmas, after the holidays, people have tons of gift cards that they received during the holidays. They’re ready to sell those and then they are able to buy a lot of them. During that period, we have a lot of activity, we know that 45% of our revenue is going to come from that period and we have to make sure that we do that. If we set a goal for the year and we know that during this particular period, 45% of our revenue is going to come from there then we put all of our resources and are able to measure after that period if we achieve our goal or not. And if we didn’t, then we can look at what happened. That’s the second reason. It really helps you understand the cycle of your business. Depending on where you are, setting months or setting periods or setting seasons are going to be important to your business. When you focus your revenue and you divide it by month, you can then see where the ups are going to be, where the downs are going to be, what season brings the most revenue and they are able to plan and take advantage of that.
- You are able to learn what drives your business. When you set goals and you measure where your revenue goes and what drives your business. When I gave the first example about somebody moving from $100,000 to $1 M, if you want to get from $100,000 to $1 M, you have to do something different. If 20 customers are coming into your store every day, is there an opportunity to get maybe a hundred more customers or 200 more customers that day? How do you get there? Because if an average 20 gets you a hundred, then you would have to go 10 times to get to the million so logically, you need to get an average of 200 people getting in every day. How do you get those 200 people? What methods of sales, what channels of sales have you used that have worked very well to bring you the customers? Are you advertising on a billboard, are you advertising on the local newspaper, on radio? Are you doing some social media that’s working? It helps you identify with marketing channels drive revenue, sales and then you are able to invest in that knowing what outcome you are going to get based on what happened in the past. By setting your revenue goals and actually holding yourself accountable to them, you are able to then understand the relationship between marketing and your advertising dollars and how they translate into customers and into sales. If you decide that you want to increase your revenue by setting margin or setting percentage, you already understand the relationship between your marketing and revenue generation. You already understand how much traffic you are able to convert and get to this revenue and go. It becomes a very easy process to be able to then put jet future revenue because you understand that relationship. That’s reason number three.
- Measuring and setting goals keeps you and your team on the same page If at the beginning of the year, you announce to your team that hey, we are moving from 100,000 this year to 200,000. You are doubling revenue then you need to sit down with your team and figure out how you’re going to do that. Out of the gig, everybody knows what the top line goal is. This is where we’re all going. We’re on the same page, we are trying to double revenue, everybody understands what role they have to play in their individual department to get there and you are all singing the same song. Measuring is very important here because now everybody sees what the goal is, they have to buy into the goal and once everybody has bought in and think that there’s a realistic plan to get you guys there then we’re all going the same direction and then there’s no confusion where the company is going and what’s happening because we all know what the top line goal is.
- Why you should measure revenue is that it’s going to light fire under you. It’s going to give you that extra push you need to make sure that you honor your commitments. What do I mean by that? You cannot just go and tell your team today we are going from 100,000 to a million dollars and then everybody’s looking at you like how are you going to get there? You then hold yourself accountable to a metric that everybody can then hold you accountable to. That’s important because then you are not just hoping that things would just happen because you say it, because you don’t. What would things happen when you do something to change something. And I’m going to say that again, you move the needle when you change something, you do something to change something. You have to make sure that when you’re setting a goal that it’s the accountability there and because you’ve gone out there and set it to everybody, now you’d be lighting the fire that has set off to make sure that you get there. If at the middle, let’s say six months later, you say you are going to get from a hundred thousand to a million dollars and six months later you only had three hundred thousand then you know that for the next six months, you have to get seven hundred thousand dollars in revenue to reach your goal. When you get to that realization, then the question is, is that doable? And maybe you have to recalibrate your expectations and maybe change course and maybe a million dollars may not be possible maybe eight hundred thousand is possible. But by constantly measuring, but measuring your business cycle behind understanding the relationship between marketing and sales and by actually knowing what is possible because you understand the business and you know how it works, then you are able to realistically set goals and change direction when you don’t meet them and also analyze why sudden things don’t happen. So here, if for instance you are going to go from 100,000 to a million dollars, and you’re doing everything you should do, but it’s not working, then something has fundamentally changed because you know that maybe in February you should be doing 200,000 dollars in sales but only did 50,000. Something has changed. So by measuring and constantly measuring and going that granular, you are able to then spark problems, structural problems very quickly and fix them because you have your eye on the ball, you have expectation on how things could work and you have an understand what your marketing dollars bring you. If all those things are not working, then you can isolate the problem and fix it.
That is the end of the podcast You Only Make What You Measure and if you don’t measure revenue you are not going to make it because you are going to take your eye off the ball and do things that probably will not contribute to the goal you are trying to achieve. I hope you enjoyed today’s podcast. Please subscribe to our channel for our upcoming videos.