What Does it Mean to Know Your Numbers?
Loaded question - but hey, I love me a good question and this one was posed by an amazing audience member of the Gain Control of Your Business' Finances series so I thought I'd bring it to you!
If you haven't yet, you will hear me and any great coach say that you need to 'know your numbers'.
Great - but what does that mean?!
For the creatives out there, this is where you get to have fun because it can truly mean anything - your options are limitless!
What I encourage you to do is figure out what your goal is.
Once you have your goal, start working backwards as to what data based information you have available to you to support that goal and what information you still need find/figure out.
The two big ones that I believe every business owner should know is your break even point and understanding your costs.
When you know these two things, that's when you begin to have leverage and clarity towards your goal.
Break Even Point:
From experience with many small business owners, not having a full grasp on how much money goes out every month leads to pretty big pain point.
The things I hear constantly circulating in the online world is the 'focus on your income and don't worry about what goes out' type mentality.
Don't get me wrong, I've seen that method lead to high highs in the beginning, but without taking the time to understand what's going out of your business, it can leave you vulnerable and imbalanced.
Think about this in terms of food - you know what you have available to you in your kitchen and you know what gets used. You either write out a list before going to the grocery store or wing it based on memory to restock your supplies based on what you know you need.
One is way more effective yet both have a basic understanding of what is no longer in the kitchen. You know your break even point with your food to reach your personal goals of breakfast/lunch/dinner supplies for the time period before your next shop and you know the essentials that need restocked.
Now I know that's not a perfect analogy, but I hope it helps you start to look at how important knowing your break even point is for your business in a different light and why it's important to know the minimum amount that needs to be brought in to cover that month.
I truly believe that this is one of the most important metrics you should know within your business because then you can start to instantly see if your sales drop, whether it's a PIVOT you need to start considering or whether you have a big enough "cushion" to allow fluctuation.
Knowledge is power.
For some of you, you might have very minimal fixed reoccurring costs to where your break even point isn't something you need to focus on because your costs come based on project - and that's okay too!
Which is why the next section is something every single business owner needs to know..
Understanding Your Costs:
This is going to look different for everyone.
Some things to consider -
How much time went into creating the sellable item?
How much is your time worth?
What are your fixed costs? (staple items like rent, utilities, insurance)
What are your variable costs? (fluctuate based on need like advertising)
How much are the resources to create the sellable item? (labor, packaging, supplies)
What are your contract labor costs? (VA's, graphic designers, bookkeepers!)
What are your liabilities? (what you owe)
What are you being paid via payroll or distribution? (depending on entity type)
I find this essential to know because this way you will know exactly what it will monetarily take to ramp up if you have pinpointed your exact costs.
Don't forget to include your cost of labor into figuring out the answer to these questions, my friend!!
Knowing your costs from an angle that helps you reach your goal is key. Figure out what that angle is for you and start digging in!
Wrapping it up:
Like I said at the beginning, knowing your numbers can look a million different ways.
For example, let's say that you want to have $10,000 months (because that's the most common one I see among service providers).
So we're starting at the goal → $10,000
How do we get there?
This depends on what you're selling and how much.
Divide the goal by the amount you charge and you get roughly how many spots you need to sell.
Then it becomes a numbers game of your audience size.. how can you grow your audience to see what you're selling so they can buy your incredible offer.
Just keep pealing it back, one layer at a time until you figure out what your numbers are saying and you have a plan of action to get to your goal.
Next Level?
If you want to level up your game, though - figure out how much you want to make.
This ties into knowing your break even point. Yes, bringing in $10,000 is an amazing goal! I love this goal! but if you're spending $9,500 every month, than you're only profiting $500.
Which means you may just be spinning your wheels trying to figure out how to get to $10,000 months when what you are really wanting is $10,000 profit months, meaning from the example above, you need to bring in $19,500.
And that's a big, yet essential difference.
I will say this a million times - knowledge is power.
And hey, like everything - there is no shame if you haven't been doing this or didn't even know you should be looking at this. These things aren't taught or talked about.
But that does mean I want to challenge you to start digging in or looking at one of these aspects for your business. It will help both you and your business grow.
Then reach out! Let me know what you found or if you have additional questions! I'd love to hear from you!
Comment below or email me at: audrey@thegracefulpenny.com