“I consider an entrepreneur someone who has a certain intuition and instinct, and, very important—they know how to run a business, they know their numbers.”
—Millard “Mickey” Drexler
As you’re aware, we do a lot of work with entrepreneurs, sales leaders and small business owners. We probably connect with several hundred new entrepreneurs every quarter. It’s a reasonable sampling to enable us to sense some common drifts. The disorders that affect an entrepreneur’s results tend to run in cycles, or maybe it just seems that way to us when we’re inside of our advisory bubble. We definitely see alarming TRENDS. Honestly, we’re kind of bugged by the trend we’re going to mention because it causes business people to lose their way and even fail…and it shouldn’t ever happen.
The alarming trend we’re talking about is the one where an entrepreneur or leader DOESN’T know their NUMBERS!
This problem may come up as we are having casual conversations. They’ll tell us (in so many words) that they suffer in one or more areas of their business and we’ll begin to ask questions—because that’s what good coaches do. As we drill down and ask even more specific questions about key issues, such as the number of raw leads in their reservoir, their organizational and personal conversion ratios or account penetration/retention, they just glaze over.
Then they utter the words that Sean Spicoli made famous in the movie, Fast Times at Ridgemont high…
“I don’t know!”
And that’s not a great answer if you’re running a business.
We stop coaching them when we hear this answer, because we can’t continue to help them fix other problems or challenges until they know their numbers.
The NUMBERS we’re talking about are any significant numbers, metrics or key performance indicators that will make or break your business! In other words, these are the numbers that you need to know to be able to…
- Start up and capitalize your business venture
- Load the proper initial inventory into your pipeline
- Measure the effectiveness of your sales and marketing efforts
- Adjust the velocity of your business to match pace with your capacities
- Understand the acquisition cost of a new client
- Define which markets or client types are creating the most ROI
- Determine the profit margin of a product, client or rep
- Calculate your business expenses
- Monitor the length of your financial runway
- Regulate the need for additional capitalization or investment
Does this sound like stuff you might need to know and get a handle on?
But you may think, “Hey, I’m not running a brick-and-mortar business like some people. I’m just a commission sales rep. (Or a sales manager)” I get it.
You may not have a brick-and-mortar business, but that doesn’t mean that you don’t have a REAL business, and it certainly doesn’t give you license to ignore the numbers like they don’t exist. So, if you are tracking with me and you agree that it’s critical to know your numbers, we’d like you to at least get started and take these steps:
If you’re a Salesperson or Solopreneur:
- Determine the total raw inventory of prospects you’ll initially need to generate enough decision maker appointments to drive adequate commission results. (Here’s a pro tip. Whatever they tell you that you need, DOUBLE that number!)
- Know what your conversion ratios are:
- Know the exact number of prospects you’ll have to touch to create one face-to-face decision maker appointment. Example: It takes 20 dials (or walk-ins) to reach 3 decision makers. You set 1 appoint for each decision make convo.
- Know your closing ratio. How many presentations does it take to yield one sale?
- Know what your average commission per sale is. Then back-chain to the income you need and the number of appointments required to create that commission flow.
If you’re a Sales Leader: (Make damn sure you know all of the above numbers, and in addition…)
- Know what the acquisition cost of a new salesperson is
- Know what your retention rate is for:
- Salespeople
- Clients/Accounts
- Know what the average production per salesperson is
We can go WAY deeper than this, but if you are nowhere, start here. Then find somebody in your hierarchy, or go over to: www.accelerator.mentumm.com and grab a peer to help you. Don’t blow off the numbers because you’re too busy, or you don’t understand them or you’re not sure which numbers are critical.
And by the way, based on many of the coaching conversations I’ve had lately, I’m not even sure it’s your fault.
I believe this trend (of businesspeople not knowing their numbers) has proliferated as companies have shirked the responsibility of offering entry-level independent reps certain categories of business development training. I also think that some organizations (that have 1099 sales forces) have become slightly more homogenized and as a result, have devalued the concept of each sales rep being a stand-alone business. To make things worse, as the generations of management layers have been promoted without real business-based mentorship, your boss, and her boss, may not be able to mentor you because they’ve never been taught basic business management concepts. They may know the product you are selling and how to sell it, but they can’t teach you how to run a business.
Again…not your fault.
You started selling products or programs. You didn’t think of it as a real business at first. Nothing was planned or proactive. You started getting good at selling and closing and then, oops…you’ve got an actual business on your hands. Then, because you can sell a little product, they promote you. Then you’re running an even bigger business—responsible for others.
But there was no formal business training offered to you. You’ve figured things out “on the job”. They didn’t tell you about all of the numbers and metrics that you have to know and monitor.
So now you know that you need to know your numbers. Now you know that you are running a business.
No more excuses!
Author: Joe Buzzello & Tom Healy
Joe Buzzello & Tom Healy are the Co-Founders of mentumm and have a shared mission to help entrepreneurs grow faster and have a greater impact on the world.