What’s your margin per head? How many spots do you need to sell on each tour to break even – both gross and net margins? How much money does each marketing channel cost you per landed booking?
It’s impossible to run a great business without first getting your numbers in place and knowing them down to the ground.
How do you know if you even have the right price on your tour if you don’t know exact costs and profits associated with your entire business? If you don’t know your per-head margin and break-even figures, it will be hard to optimize for future cash flow.
On Shark Tank or The Profit (two shows I love), you’ll notice they will heavily judge an entrepreneur who doesn’t know their numbers. It’s your ticket to legitimacy as a business person, and I don’t say this lightly.
Profit is the money left over after all expenses. You know this. By knowing your numbers, you know exactly which levers to pull to generate more of that profit. Many people who attack Adwords are the exact people who don’t know their numbers (a generalization here, but bear with me). Tracking the effect of Adwords is fairly difficult and requires an expert – either internal or a consultant – to set things up to track the effect.
In 2013, I worked with someone who had just stopped Adwords because they thought they were losing money on it. They hadn’t even set up tracking, so they had no real way of knowing if they were making a profit on it! Once I did the analysis, we saw that their previous month had generated around $100 of revenue for every $16 spent. Boom!
Taking the opposite side, a while back I consulted for a business where the partners were fighting amongst themselves. It was a terrible situation where the business was losing money with no real hope of recovery. They were spending around $5000 a month on Adwords, and one of the partners was convinced that they had to keep going. Once I looked at the numbers, I was able to show that Adwords was generating – you will not believe this – just $460 on average per month in revenue. Terrible. If you don’t have a method for tracking the return of spend on marketing, you’ll be lucky to stay in business going into the future. All around you, your competition is growing sharper and more refined.
Let’s have a look at some steps you can take to improve your numbers:
1. Set up Google Analytics tracking the right way. You can install Google Analytics yourself, but to configure it correctly, you need to take extra steps, and this should be done by an expert. It’s possible, for example, to show which marketing sources are leading to questions through your contact form. Facebook may be generating traffic, but is it generating customers? We can show this kind of thing in Google Analytics when configured correctly.
2. You need to be tracking all numbers in a spreadsheet on an ongoing basis and have the capability to track changes over time. Numbers mean nothing without context. Being able to compare year-on-year performance is invaluable.
3. Be mindful of the cost of time. Facebook is ‘free’ to post on, but time-sucking. Sending employees around the streets with leaflets can actually be a good idea, but make sure to track the cost of their time in doing so. Not just the hourly rate you pay them but their entire cost to you as an employee.
4. Make sure you have a great bookkeeper or accountant who is engaged with your business and understands what is needed to take you to the next level.
5. Get your team on board. Business owners who keep numbers to themselves are the majority, but it’s not clever. You’ll be surprised just how fully employees will become part of your mission if you just allow them to be. If they can see the breakdowns of expenses and the movements in performance, you’re much more likely to get them on board with you. Why? Because now they understand the context! It’s all too easy to think poorly of your team, but if they are operating in an information vacuum, what can you expect from them?
6. Focus on actionable metrics instead of vanity metrics. Vanity metrics are things like number of website visitors or number of Facebook followers. Things like website conversion rate, Facebook post engagement and percentage of repeat business have more effect on your success. As a result, they should be tracked more closely.
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