Numbers, numbers, numbers. They can smoother and paralyze you, even make your head hurt!
We all know that business comes down to the numbers, so why do we either refrain from looking at them, or nonchalantly brush them over to the side.
One issue is that there can be so many of them, which causes your eyes to glaze over, and besides that, no one may have ever tapped you on the shoulder and suggested to you which ones are worth your attention.
At the startup phase, you may not have a full set of financial statements, but hey, that’s perfectly okay.
However, you should keep tabs on a few key metrics, not just during the early grinding stage, but also as you scale.
The best things come in 3’s, so get ready to learn the 3 key numbers that can really propel your startup and aid you well during the life of your business; let’s dive in…
Customer Acquisition Costs
The Big Picture
Don’t just throw money at marketing, track everything
What it Tells You
How much it costs to get a customer
Why it Matters
What’s the point of investing ton of dollars into marketing and not see your revenue growing?
How to Find it
Add all marketing expenses and divide them by the number of new customers acquired.
Example
Your marketing expenses equal $100; you acquired 10 new customers. Take your marketing costs ($100) and divide them by your new customers (10). It costs you $10 to acquire each of your new customers.
Gross Profit
The Big Picture
You use gross profit to run your business, not net profit
What it Tells You
How efficient your pricing model is
Why it Matters
It allows you to stay above your customer acquisition and overhead costs
How to Find it
Selling price minus product costs (or direct costs to provide service)
Example
Your selling price is $50, and your product/direct cost is $10. Take your selling price ($50) and subtract your product/direct cost ($10). Your gross profit is $40.
Breakeven Point
The Big Picture
Keep your fixed expenses as low, as long as possible
What it Tells You
How many sales you need to make to cover your fixed overhead
Why it Matters
Your overhead has to be paid each month, no matter what!
How to Find it
Fixed Expenses divided by Gross Profit
Example
Your fixed expenses are $500; your gross profit is $40 (from gross profit example). Take your fixed expenses ($500) and divide them by your gross profit ($40). You get 12.5. In other words, you must sell 12.5 units to break-even, or before you generate a profit.
Hopefully, you feel at ease knowing that you don’t have to know every single number in your startup to be successful, which would actually take your focus off growing your awesome startup.
Leave the boring details to the accountants because you have much more exciting work to do that look at numbers all day long!
About the Author
Edward M. Morrow is an accountant, speaker, and author. He has contributed his expertise through The Young Entrepreneurs Academy (YEA!), SCORE, Georgia Institute of Technology’s Enterprise Innovation Institute, and The 3 Day Startup Global Roundup. Edward created the site, nonaccountant.com to make accounting enjoyable and understandable for entrepreneurs.
