“How’s business?” When I ask that question, I must admit: I have an ulterior motive. What I really want to know is, How well do you know your business?
“Business is good, Marvin. Sales are up.” When I get that answer — and I often get that answer — I suspect they don’t know their business very well. If you’re not tracking data, and most small-business owners that I know don’t track data, you don’t know your business very well.
What is data?
Data is the numbers and the information you should track. Here are a few numbers you should track daily:
- Net profit
- Gross profit
- Profit margin
Here is some information you should track daily:
- Customer surveys
- What are your competitors doing?
- Where do your customers live?
- Which product sells best? Why?
You also want to look for new technology that can make your business more efficient. And thus more profitable.
Where are the numbers?
You’ll find these numbers in your balance sheet, which shows assets, liabilities and equity. As the name implies, your balance sheet must balance. You should also be familiar with your income statement (or profit-and-loss statement), which shows your revenue and expenses for a given period (e.g., year-to-date) from operating and non-operating activities.
By tracking these numbers, you’ll know where every dollar comes from and where every dollar goes. You’ll know your business. However, if you fail to track these numbers, you’ll give your competitors a competitive advantage.
Not just the numbers
In addition to tracking numbers, you also need to track information. The more customer information you collect and track — age, education, ethnicity, gender, geographic location, income, marital status, race — the more specific your customer becomes. I cannot emphasize this enough: You have to know who your customer is.
Assume you’re a real estate agent, and 65% of your business comes from 40- to 55-year-olds. Does it make good business sense, in your effort to attract new clients, to spend all of your resources advertising and marketing in a magazine whose target audience is 20-year-olds? That may seem like a good age group to attract, and you can certainly allocate resources to attract them, but your data say you should allocate at least 65% of your resources advertising and marketing to 40- to 55-year-olds.
Where are your customers?
Know where your customers are and go to them. Advertise where they are. Meet them where they are. Socialize where they are. By relying on your data, you’ll spend your time and resources connecting with your customers in the most effective, most efficient manner.
If, for example, your business is in Kansas City, Missouri, but 70% of your clients live in Lee’s Summit, Missouri, you should go where your data say: Spend at least 70% of your time canvassing for clients in Lee’s Summit!
In addition to tracking numbers and customer information, you also need to track inventory and equipment. Assume you own a delivery service and have four trucks. One of the first things you need to know: How much money does each truck make? To answer that, you have to know its expenses:
- Miscellaneous expenses (e.g., tires)
- Tax (e.g., business, property)
It’s important you know how much revenue and profit each truck can earn. If your trucks are operating at 50% of capacity and business increases — so you have more deliveries to make — don’t buy a new truck. Increase the workload on the trucks you have.
Does this really help?
Perhaps you’re thinking, “My business is fine. I have lots of clients, and I’m making money.” I’m always happy to hear that business owners are making money, but remember this: Your competitors want your clients. And they’re continually looking for ways to make your customerstheir customers.
Don’t assume since business is good, if you do what you’ve always done, it’ll continue to be good. My experience has proven this is not true. If you want business to continue being good, make the effort to really know your business. Study your data, and base your business decisions on it. If you don’t, I’ll be asking you an entirely different question: “What happened?”