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john-jantsch

John Jantsch

Founder of Duct Tape Marketing

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In Order to Succeed, You Must Keep an Eye on the Cash

April 28, 2016

When people discuss metrics, it seems they are just talking about website visitors, Twitter followers, and Facebook shares.

When people discuss metrics, it seems they are just talking about website visitors, Twitter followers, and Facebook shares. While these can give business owners valuable insight on the health of your online marketing, Twitter followers are useless if they aren’t bringing you more sales and improving your bottom line.

While most business owners understand most of these metrics (you wouldn’t be in business if you weren’t trying to make more money, right?) sometimes they can lose track of them in favor of the vanity metric of the week. It can also be difficult to keep track of these metrics in conjunction with newer metrics because finance tools are somewhat antiquated.

Newer tools like Xero and Freshbooks are more “real world” friendly and produce reports that can help you guide your business in ways that balance sheets never will. (I’ve used Quickbooks from day one, and in recent years it has gotten better.)

I highly recommend picking up Greg Crabtree’s book Simple Numbers or Mike Michalowicz’s Profit First, but here, also, are the financial metrics I find important in my business:

Sales. This isn’t very telling on its own, but you certainly need to know if sales are up or down. I also believe in sales projections (a lot like informed goal setting based on past performance and other factors), as a driver of growth. Compare your sales to other digital metrics to get an understanding of how the metrics relate. Are your sales increasing in conjunction with an increase in traffic to your site? If not, how can the two work together?

Profit. Too many business owners view profit as enough money to pay themselves, which of course, is a job. If you ever want to sell your business, you need to think about how to show 15% profit after you pay yourself. That number is straight from Crabtree’s book, and I love it.

Expense. This, of course, is a big piece of the profit number, but it’s also a place to look for waste. I suspect many businesses could afford to pay someone to work on this number exclusively and come out ahead.

Cash Flow.When you can no longer balance cash demands and expenses in your head, you better rely on a weekly cash flow report.

Productivity. Profit per labor dollar is a critical measurement if you can find it. It’s a great deal like cost to acquire a new client. If you can get very good at these two key performance indicators (KPIs), you’ll always know what you can spend on marketing and labor.

Use these metrics to keep an eye on the overall health of your business, and you’ll be able to read the story of your business’s money.

This article originally appeared on Inc.

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