Today we are talking about analyzing your business data and managing by percentages. Why do percentages offer a superior way of looking at data sets in your business? We are dissecting marketing, KPIs, financial percentages, and industry comparisons that will give you better insight into your business, help you track progress, and reach your growth goals.
What we cover in this episode:
- 01:47 – Why is managing by percentages a superior way of analyzing data?
- 05:28 – Revenue growth percentages and cash flow
- 08:50 – Percentages reveal trends
- 10:11 – Marketing percentages
- 16:10 – KPI percentages
- 22:41 – Financial percentages
- 26:10 – Industry comparisons
Why is managing by percentages a superior way of analyzing data?
When you are looking at numbers, whether large or small, it helps to understand them when it’s explained by a percentage. For instance, if you are told that one million people went to parties over the weekend, that is a large number on its face! But if you look at that number as a percentage of a variable, say the whole population, it puts that original number in perspective. Percentages help us put context around data when it comes to numbers, both in business and in life in general.
When you manage your business by percentages rather than simply the numbers themselves, you have a better context and understanding of the data. You can leverage percentages to analyze many situations in your business and measure how you are performing. From sales numbers to marketing and your costs, as well as your personnel, using the best tools you can when running your business just makes sense. That means managing by percentages and looking at your business data in a superior way, in order to make better decisions and to grow your business more effectively
Percentages have more meaning than just numbers
When you are looking at the data for your company, you need to have something you can compare to when setting your goals and business strategies. For example, you’ll want to do more than just pluck a number out of thin air when it comes to your revenue goals for the next year. What percentage of growth is that? When you look at your goals from a percentage perspective, that number you stated as your goal could mean 20% growth, or even 30% growth, and you now have some context behind that number.
With this percentage, you now have the ability to step back and see what that goal really looks like for your business. If you need to do 30% more in sales and revenue, what does that look like for your business operations, your administration, supply costs, et cetera? Are you currently set up to achieve that goal of 30%, and is it actually realistic? If not, what would you need to put in place to actually achieve that goal percentage across your company? Percentages give meaning to your business data and numbers.
Revenue growth percentages and cash flow
Many times we hear from business owners who are making more money, but they are struggling with cash flow. Their sales are up, so they do not understand why they are still struggling. The timing of cash coming into the business can be misunderstood by owners. Sometimes it’s managing the receivables, but other times the money you are making is costing you more out the door before it hits your bottom line. We’ve helped many business owners analyze this issue of why they are not retaining revenue.
Finding the answers to this question has its complexities. This issue in a business usually means there are inefficiencies somewhere, so business owners need to find the source, which requires looking at percentages.
The first place to start is your profit and loss statement. With good accounting processes in place and timely information, you can review your financials on a regular basis and make changes in your business if needed. Many businesses have different streams of revenue, and reviewing each of those streams and knowing what percentage of your business comes from each of those streams is key. It’s important information to know for your operations, but also to determine your costs for each of those revenue streams.
The numbers will change as you grow your business, and keeping your percentages under control as you grow should be the goal. There is some natural progression in companies as they grow and scale up. If you are currently doing everything yourself, there are some built in efficiencies, but as you scale your business and grow, some of those efficiencies will be lost as you grow beyond yourself.
You’ll see those percentages change as you add staff, train new team members, add costs, et cetera. You want to establish what those percentages should look like based on history, but also by utilizing industry reports.
Both historical and industry data will give actionable insight about what you should be shooting for and assist in establishing budgeted costs. If you blow up your spending for whatever reason when scaling up, you may potentially end up with loss situations, and cash flow problems that can negatively impact your business, so It’s important that you are watching your percentages. If you’re looking for more information about cash flow, we cover that in a series from episode #21 – #23. We also offer a FREE cash flow template download.
Percentages reveal trends
If you are looking at numbers alone, you are only seeing static information. Numbers will show you some level of performance, but using percentages will give you the trends you need to be a good manager and business owner. Month over month, year over year, those percentages may change and vary.
These changes can be caused by outside factors, such as workforce challenges causing a labor shortage, or cost increases in products or services you need in your business. These factors may affect your salaries, benefits, and other expenses causing increases in your percentages and trends year over year. Mindful analysis of these trends helps you to expect changes based on the current economics and your business situation.
Conversions are one number you can look at in terms of percentages. When we say conversions, we mean how many leads are you converting to a qualified prospect and then into an actual client. For example, you can look at the actual number of conversions you had this year, perhaps the number is 50, but unless you are looking at that number year over year, and looking at it as a percentage, that number 50 doesn’t have much context. That number of 50 could be really great, or really terrible, depending on what you did the year prior and what your goals were.
There are many considerations when you are looking at this number and setting goals. For example, you may have recently changed the product or the service that you’re selling. Rather than selling a $500 service, perhaps now you’re selling a $3,000 service. Maybe 50 is a really great number to hit because you had 200 conversions last year at $500, but this year you had 50 at $3,000. If you had a big transition in the level of service that you’re providing, then you can’t just look at the percentages because there’s some back story into what’s happening with what level of service you’re selling.
Alternatively, if you look at your conversion rate and it seems much higher than historical, then perhaps it could be that your prices are too low, and that is the reason for the higher conversion percentages. Using percentages in conversion rates gives you context in your marketing services to monitor your success and make informed decisions about your business.
Another use for percentages in your business marketing is using it for your website analytics and determining the number of people coming to your website. You can gain insight into the pages they are viewing, how long they stay, the bounce rate (people leaving after looking at one page), et cetera.
When it comes to website analytics, you have to take a step back and look at what your goals are for website visits. What percentages will matter the most to you and your business? Have you seen a big correlation in people that spend more than five minutes looking at your services page that ultimately convert to sales? If so, then that’s a percentage you want to focus on and keep increasing over time. If the number of views for that services page is really important, then that percentage year over year, and month over month, will be something to track, and you’ll want to be able to compare it to your historical data in order to make smart and timely decisions.
The last point we want to bring up in regards to marketing percentages is related to social media metrics. These can be tricky to establish when it comes to setting meaningful goals. Getting a ton of “likes” on your social posts can be great, a rush in a way, but they do not pay the bills in your company. Many people like to focus on these, but they are called vanity metrics for a reason. Perhaps it’s different if you’re an influencer and you’re getting true engagement and driving people to your website for sales, but you have to really decide what social media engagement means for your business, and what your ultimate goals are for your company.
If you are consistent in your use of social media posting, content and track your percentages over time, it can be useful, but you need to also look a little deeper and figure out the reasons behind the engagements, and if they truly have meaning for your business and your goals.
KPI (key performance indicator) percentages are the next item we want to discuss. KPIs are incredibly useful, and can impact all areas of your business. Knowing and using these percentages can make the difference between success and failure in your businesses. There are many ways to use KPIs in your business. Monitoring your KPIs in relation to client turnover, as well as personnel turnover, can help you make important decisions about your business.
You should use your KPI percentages to monitor your clients satisfaction levels to ensure client expectations are being met. If the answer is no, you will have to start asking some difficult questions. Are we doing something incorrectly or is there a break in the processes somewhere? We want to make sure that we’re monitoring those percentages because that can, again, point to a potential problem in the business.
The same thing can occur with our staff or team members. What could be causing the turnover you see? Is it short term hires that were not the right fit? Or is it longer term employees or staff? Are they satisfied with their work? Are they feeling fulfilled? Are they justly compensated? Monitoring the KPIs and percentages around your staff and retention is important, because adding staff and training them is expensive for a business. Monitoring the internal processes of the business allows you to know what may be causing variations in your percentages, and gives you the knowledge you need to make changes and get your percentages back in line when needed.
The next items we want to bring into the conversation are about utilization, realization, and production and their KPI percentages. Utilization relates to whether you are using your full capacity. Most companies don’t run at 100 percent utilization all the time, so don’t expect that to happen, but you’ll want to watch your percentages closely. Are you getting enough sales to utilize your people, and are the percentages pretty stable? If you have a lot of ups and downs in your percentages for utilization, you may want to take a step back strategically, and look at how you can smooth that out throughout your year.
These KPIs are going to drive those cost percentages that we mentioned earlier on the profit and loss statement. If you are not utilizing and realizing correctly, your costs are going to be high, and your revenues are not going to cover as much of your costs, and your percentages are going to drop. Depending on the organization, you should monitor these KPIs frequently, maybe use a scorecard to track monthly, et cetera, and if you’re having issues with one area, monitor it more frequently in order to tweak and make adjustments in your business.
While we’ve touched on the profit and loss statement percentages and the importance of monitoring those numbers, we have not yet discussed looking at the balance sheet for your company. The balance sheet happens to be a really good picture of the financial strength of your company, and you want to be monitoring what is happening here as well. What Is growing? What ratios do we have? Growth percentages and percentage ratios seen on debt to equity are the items to keep in mind.
The balance sheet side of your financials is a bit more technical, and we find that most people inherently understand the profit and loss statement a bit easier. But, the balance sheet does show the growth of the business and the strength of the business, and you want to be sure to monitor on a regular basis. The financial percentages will give you the context you need when reviewing the balance sheet, and if you need to learn more about those kinds of things, perhaps an advisor can assist in helping you to understand where you stand.
Percentages in the profit and loss statement, and in the balance sheet, help you to look at your historical trends. You can also review industry specific trends, and should use both trends when establishing your budgets for the year, and your plans and goals. For more information about financial modeling and KPIs, check out episode #85.
Industry Comparison Percentages
The power of percentages comes to light in some different areas, and is especially important when using them for context when it comes to industry comparisons. Katina stated ‘If you’re comparing yourself to somebody in the industry, and, maybe you’re a $5 million business, and they’re a $30 million business, the numbers aren’t going to mean a whole lot.” But when you look at the percentages of costs, labor, etc, these are relatable numbers no matter the size of the company.
Percentages are definitely important in your business planning, and you can use them to forecast out how your business is going to be in the next three months, six months, et cetera, so that you understand the impact to your business if changes come up. What if your biggest customer decides to leave and you have three months to transition them? If you have the forecast drivers in place, you can see what the impact will be, and you can make adjustments and fill the gaps.
Budgets are more static, as we talked about before, and a forecast is more moving, but the forecast drivers and percentages help us to predict what things are going to look like in the future. Whether that’s in a positive light, or a negative one, like losing a customer, or winning a giant contract you have to be ready to take it on in two months, this forecast is invaluable. Having the percentages and knowing the importance and the context of the data analytics you are looking at is a succinct way of managing your business for growth and success.
There are so many things you can do with percentages, and if you are reviewing your data regularly, you’ll have to have context to make better and informed business decisions. If you haven’t yet started to utilize percentages in your business, it can be a great first step to put context around your profit and loss statement, and then move on to other areas of your business and your KPIs.
Once they are established, they are easier to maintain, and remember that data without context is meaningless. You’ll then be off to a great start, better understand where your business is headed, and have the ability to take the next steps to grow your business.
Links mentioned in this episode:
- The Cash Flow Series on Cultivating Business Growth
- Free Cash Flow Template Download
- Episode #85: What is Financial Modeling?