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[First: Principles] - Know Your Numbers

I've written about this before, but I felt it essential to include in the early issues of this newsle
[First: Principles] - Know Your Numbers
I’ve written about this before, but I felt it essential to include in the early issues of this newsletter. We also have a new, free training for artists, creatives, and small business owners that is out now.
You can sign up for free at Bnchmrk.app

Why You Need To Know Your Numbers
You’ve seen the tv show Shark Tank, right?
One thing that comes up on nearly every episode is a conversation with the business owner about their numbers.
(This one’s a tad painful to watch…but it shows the point quite nicely)
This one's a tad painful to watch, but shows the point...
This one's a tad painful to watch, but shows the point...
It could be sales figures (over a given time, since the start of the business, month to month).
Or financial numbers, like how much has already been invested, how much it costs to acquire a customer, and their lifetime value.
Now, in the context of Shark Tank, the numbers conversation occurs because the investors, or Sharks, want to understand how much money the business makes so that they can make a decision on whether or not they want to invest.
But for YOU, the business OWNER, the context is a little different…
In Order To Know Where You're Going, You Have To Know Where You Are...
I’ve worked on a TV show called Relative Race for the last two years. There was a moment in season five where one of the contestants - who have to navigate to a new city every day without the use of phones or gps - could NOT figure out where they were on a map, which made it impossible to figure out where they were going…
Season 5 Episode 1 - BYUtv
Without an understanding of how to read a map, they couldn’t figure out where they were, so they lost a lot of time and ended up with a strike.
Not fun.
The equivalent for our businesses is that if we don’t know our numbers, if we don’t know where we are with our business right now, it’s incredibly hard to make any progress toward where we want to be.
An example might help:
A filmmaker friend decides to leave her job where she has been making $40k per year as an employee, because she believes that she can make $40k per year as a freelance filmmaker instead.
She goes out and does well, finding a few jobs a month that equal about $4,000, and ends up making $48k for the year.
But because she didn’t understand things like overhead, taxes, operating expenses, and what it cost to produce the projects she was working on - rental fees, subcontractors, locations, food, etc… - her take-home pay for the year was actually $28,800, nearly $12,000 less than she was making as an employee.
An understanding of her numbers and how her business operates going in would have saved her a ton of frustration with her results.

Now… this principle also applies to those that are looking to grow their businesses.
The numbers involved here are things like average order value, cost to acquire a customer, return on ad spend, lifetime customer value, and profit margin.
Why? Well, let me ask you another question:
Is it possible to increase sales, but lose money?
YES!
Believe it or not, it’s surprisingly easy.
Say you make a product that costs $10 to make. You then put it up on Etsy and sell it for $20 plus shipping. You realize that the product weighs more than a pound when you ship it, so it will cost $13 to spend. You aren’t getting any sales because of the high shipping, so you make shipping a flat $3.
Now your cost is $23 ($10 for the product and $13 for the shipping) and you’re charging $23 to the customer.
You made $0 on the sale.
But, you have bills to pay…a friend you pay $12 an hour to help you with shipping. Your office space, internet, and other expenses.
You start selling more and more, so you have to add more people to help with the production and shipping.
A bigger office space.
More overhead and expenses…
See how more sales in this situation could be a bad thing?
So before you decide that you want to grow your business, you need to know your numbers to ensure that you’re actually growing, not just growing because it’s cool.
The Numbers That Matter
Generally this conversation ends with someone asking, “Okay, then. What numbers do I need to know?”
There’s no one-size-fits-all answer to that question.
Luckily, there are principles that can be applied in a number of situations.
We have a new, free training for creatives that you can get at bnchmrk.app
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Daren Smith | Craftsman Creative

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