Business is a numbers game and success requires knowing your bottom-line numbers. How else are you going to know whether your efforts are worth the time, money and energy you are investing?
It’s hard to imagine, but often small businesses get so caught up in the daily doing of operating the business that they have no idea what activities are profitable. It’s how companies manage to lose huge amounts of money without knowing how or why: no one bothered to measure which activities cost money and which activities generate money.
A simple litmus test for any business is the profit test because it applies to a broad range of operational activities. In simple terms, what you pay out in time, energy and money has to bring more in than it cost or compared to other activities.
For example, applied to customers, the profitable ones are those who require the least amount of sales and marketing effort to acquire and need a minimum amount of customer support to stay happy compared to the dollar value they spend.
Applied to lead generation activities, the profit test compares the marketing and sales costs to the dollar value of the resulting sales. It’s worth spending big to bring in new customers that will over time spend tenfold that amount. The key is knowing your numbers.
How to Start Measuring Your Results Against Profit
Calculate the Cost versus Return – Attach a cost to each and every activity you undertake to generate business and compare that to the return. This requires tracking where your business leads come from so you can assess the return.
For example, attending a weekly networking meeting costs the membership dues, meal expenses and time commitment. Compare that to the dollar value of the business generated by referrals from the group.
Compare Between Activities – List all your lead generation activities and the Cost versus Return for each, and compare between them. What would happen if you spent more time and money on one over the other?
Let’s use our networking example again. So, if your networking efforts generate a lot of low-value leads because the group isn’t the right fit, it may make sense to focus on a different activities that bring a better return, like responding to RFPs (Requests for Proposal).
Assess the Long-Term Customer Value – Now evaluate the value of each individual customer or client, or type of customer or client. How much do they spend over the long-term?
Suppose your business services a number of different markets, for example. It may make sense to drop one or more of the smaller markets to focus on generating more business from your best market.