Even if numbers aren’t really your thing, it’s worth it to get comfortable with them. The reason is simple: knowledge is power and the most useful knowledge about your business comes in the form of numbers: cost per lead, lifetime spent, profit/loss per client and so on.
Without understanding how a simple change on one side of the equation impacts the other, you can’t make informed business decisions. Instead you are just driving blind, uncertain as to whether or not your business is actually profitable or what makes it the most profitable.
Let’s take, for example, the impact of a seemingly minor price adjustment. On paper, it seems like a good idea – a little extra from each customer adds up quickly. What it fails to take into account is the drastic drop in volume that results from even just a little increase. A good metrics system would tell you right away that your decision cost you profit instead of improving it.
Examples of how to use data to drive business decisions:
Determine which are your most profitable clients. Understanding which clients are the most profitable allows you to: 1) create a profile of that client to find more clients that fit that profile and 2) survey them to find out what else you can offer to increase profit and/or enhance the relationship to retain them as clients.
Examine your expenses to find costly money leaks (and that includes customer service draining clients)! Often your money leaks comes down to operations. Is there an internal process that costs you more to administer than you gain from it? Are you overspending on a low-profit product line?
Calculate lifetime customer value. Knowing what each customer is worth helps you determine a reasonable marketing budget to acquire that customer. It also helps you decide where to focus your customer engagement efforts. For example, a low lifetime spend may mean you need to focus on customer retention.
Attribute profit to lead generation efforts. Understanding which lead generation tactics yield the most profit helps you focus more of your time, energy and marketing budget on those channels. For example, calculate how much new business results from your weekly networking group.
Don’t make ANY decision without first asking the numbers. Even if you don’t have actual numbers to work with, sketch out a basic scenario that summarizes your current position and play with the variables. Get curious – ask the numbers what happens if you added this or subtracted that.
