Every business is ran on numbers. No matter what industry you are in you have the responsibility of knowing your own numbers. Knowing your numbers helps with maximizing your margins, reducing your errors, and automating your business so you can truly run your business like a machine. When you are able to successfully put your business on paper with the numbers involved, you can now begin to attract investors because they will be able to see the return on their investment much sooner.
Let’s start with talking about business operating off the numbers.
Running your business from the numbers is the way to make your business the most profitable. There are already enough variables when dealing with business when people are involved...human error, unreliability, over utilized, lack of experience or resources. These are all things that plague businesses at any level. Being able to take the focus off of people and place it back on the numbers is what will help people feel more comfortable with those inefficiencies but drive them to focus on things they can control - like the numbers.
Exercise:
Think about what it cost to make one product.
Acquire one lead
Sign one client
Whatever your business is, think about everything involved with doing what your business does to make money, and each step in between there. How many times do you have to do that one thing before you successfully complete that task?
A niche page owner works to attract subscribers and viewers to his content.
Each action they do has a cause and effect.
When they make a post it creates viewers. Each view leads to so many clicks and each click can generate a redirect/income/subscriber. With enough data one can generate average data to show the answer to some of those questions.
1 post translates to average 3500 views
3500 views averages 130 clicks
130 clicks translates to 2 subscribers, $6.20, and another $25 affiliate redirect
Now that you have that information - you know how to scale your niche page business.
What if you do 2 post a day, that’s average of $31.20 a day - in a given week $218.40.
In an average month, that’s $946.40 that you are generating.
Let’s say, it takes you 3 hours to create those 2 post, now you know how much you generate per hour.
$31.20/1.5 hours = $20.80/hour
As the owner you can look at this several different ways. You can look to reduce the time it takes you to create one post and condense it to 1 hour to create the post. Which if it doesn’t hurt the quality of the post then the numbers should stay the same, and allow you to have 33% marginal growth or another $10.40/hour.
If you ever decided to go full time to create content in a 8 hour work week that’s $249.60/day.
Which again with normal work weeks amounts to about $65k/year generated.
Now let’s say you wanted to scale that even further as the owner and start getting contributors to help with the post.
If you paid them 2/3 while you keep 1/3 to put back into the business. That can free up your time while still earning income.
That is $10.40/post
$31.20/hour.
If you are receiving 10 post per hour from your contributors. That’s now $104/hour which given the same work week of 8 hours a day and 5 days a week.
That now grows to $216,320/year generated from that niche page.
Without having any numbers available however, it will be difficult to know how often to post to make money, what to pay contributors, even what you are doing to make money.
This example is meant to show what you can do with just that bit of information to scale the business. That same information can be used to identify problems with your business too. If it takes you 2 hours to post or if you need to make more content to reach those numbers then you can more easily identify the issue with the business.
To relate that to your own business, having time and a large enough sample size to research the business numbers is important to getting to that point.
Once you have those details some important equations that will help you out.
Profit Margin : (Price - Cost)/Price
It cost you $50 to create your product, and you have been selling it for $72.50 trying to get a 45% profit margin but realize you haven’t been getting that.
Looking at the formula 22.50/72.50 = 31% profit margin
ROI : (Price - Cost)/Cost
Same numbers for your ROI, this is used to see your cash on cash return (how much is tied into the product vs what the return is on that investment).
($72.50 - $50)/$50 = 45% ROI
Common mistake with Margin, ROI, and the next one is Markup.
Markup : COST/(1 - expected profit margin) $50 to make a product and you want 45% margin.
$50/(1 - .45) = $90.90
So you would sell your product for that amount to actually get the 45% profit margin you are hoping for.
Over a large sample size of 1000 units sold that loss of revenue being brought in through a simple mathematical error translates to about $18,400 loss.
Sum it up, know your numbers and don’t be the people left with money on the table!
