Remember those word problems you dreaded in your middle-school math class? "We'll never use that in real-life" we all thought. Well, entrepreneurs couldn't be more wrong.
No, this isn't about figuring out at what time Train A and Train B will meet if they are going 80 miles an hour. But similar types of problems have existed almost daily in all of my businesses as long as I can remember. Finance decisions can be solved by turning them into word problems:
Should I hire another salesperson? I have 200 leads a month, with an average lead requiring four hours of time over a six-week sales cycle to covert into a sale, currently working 160 hours a month each.
Should I raise my prices or increase production? I have enough staff to turn out 50 widgets a month, but I'm getting 500 people to my website a day, and averaging a one percent conversion rate.
Should I advertise with this magazine? They have 100,000 readers, but only 10 percent are in my demographic. If one percent of that 10 percent buy my product, will I make a return on my investment?
In order to answer these questions, your business must have tools in place for you to gather some basic data. There are many tools out there, but the following three tools will capture more than 80 percent of the metrics an entrepreneur needs to make smart decisions.
- Keep great books. Software like QuickBooks is known to help businesses answer many questions about the current state of their business, but can also be used to help you forecast growth. Can I give my entire staff a raise? What will my sales look like in Q4 if I raise my prices in Q1? How do my payments split up over the life of the project? How much revenue will still come in if I didn’t sell anything new?
- Track your sales team. Software like Salesforce can help you figure out your entire sales and project process. How long do deals take to close, how many leads does each sales person work on, when does a sales person have too few or too many leads, what is the average cost of your product by customer type. Those are just a few of the dozens of metrics your customer relationship management software can do for you.
- Analyze web data. A visitor analytics package like Google Analytics is crucial for tracking the visitors on your website. Ecommerce or not, you need to know what your visitors are doing, how they are getting to your site, and which source of traffic yields you the best sales or leads. Measuring conversion rates is key. Most business owners make the mistake of only focusing on increasing traffic in order to increase their sales. Often a quick study of your visitors’ behavior on your website, as well as small tweaks to improve their experience can quickly increase your conversion rates.
There are many more systems out there to help you gather metrics about your business, but the three above can help you gather the minimum information you'll need to help you make informed decisions. Keep in mind, that often data from multiple metric systems will be needed to help you draw conclusions about your decisions.
It's extremely important to keep all the data accurate and up-to-date. If you have staff, train them and let them know important this data is to not only to the growth and success of your businesses but to their own decision making.
Remember, you may have made the best decisions in your business by going with your gut, but having great metrics to help your gut decisions become more accurate and easier to forecast will yield much better results.
Ilya Pozin is a serial entrepreneur best known for being the founder of Ciplex, a digital marketing and creative agency.
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the country's most promising young entrepreneurs. The YEC promotes entrepreneurship as a solution to youth unemployment and underemployment and provides its members with access to tools, mentorship, and resources that support each stage of a business's development and growth.