There’s Power in Those Numbers
Leaverage data now for your best year ever.
by Chia-Li Chien | Dec. 08, 2014
Most business owners like you don’t live in an ivory tower. You get out and about stay on top of what’s going on in the market and focus on capturing those opportunities. As a private small business, you are a part of the Research and Development (R&D) arm of Fortune 1000 companies. Your innovation in products and services are a part of the stats and stories that inspire many new entrepreneurs.
As you approach the year end, I hope you will find a way to leverage the power of numbers and get closer to your own target numbers. To start, I want to make sure you’re forecasting next year’s numbers. This set of numbers could help you sustain or increase your market shares, as well as cost-effectively execute and reach your goals.
Many of you might have a set of assumptions that helps you finalize your forecast or plan. Your internal historical data is a critical piece of information for that process. It provides accurate data for the forecast and allows you to focus on execution. Most importantly, this data helps you hold your team accountable for the success of the plan.
So where should you get these external assumptions that will predict accurately the success of your plan or forecast?
Why do you need the economic outlook (or forecast) in your number assumptions? Well, the growth rate you assume for sales will be impacted by changes in the economy (unless your business is not impacted in general by the economy). There are several places to find an acurate economic outlook and either historical data or forecast data. In general, there are two areas you can leverage:
Historical macro-economic data: For general macro-economic historical data, the Federal Reserve Bank (FRB) is a great place to start. You can do an online search for the FRB in your area and find national data as well as your local data. The FRB provides data sets such as Gross Domestic Production (GDP), Housing Prices, Housing Starts, Consumer Price Index (CPI) or inflation, unemployment, building permits, vacancy rates, etc. For industry specific data, such as the Industrial Producer Price Index (IP), you will find better information at the U.S. Bureau of Labor Statistics site. If you operate globally, you can visit World Bank Group, which provides similar sets of data to what you find from the Federal Reserve Bank.
Forecast macro-economic data: The Wall Street Journal Economic Forecast Survey is the most popular for forward-looking macro-economic data. The Wall Street Journal surveys world economists on a regular basis and asks them their predictions. On their website, you can find predications of three years into the future for GDP and other factors. When external factor change, knowing macro-economic forecasts will help you get ahead of the game and avoid getting blind-sided.
Keep in mind the industry you are researching. For example, higher education typically goes against the economic cycle. When the economy is down, more people enroll. The auto industry goes with the economic cycle. When the economy is good and interest rates low, people are more inclined to buy big ticket items such as automobiles.
Key Performance Indicators
Once you have your plan for next year, it's important to set performance measures. I call these Key Performance Indicators (KPIs). KPIs help you monitor progress throughout the year.
There are two types of KPIs: Leading KPIs and Lagging KPIs . Leading KPIs are indicators that you and your team still can affect or contribute to performance. Lagging KPIs are the results you get from your Leading KPIs, such as the number of prospects or quotes per week, conversion rate of prospects to customers, customer retention ratio, customer repeat sales or up sell numbers, etc. Examples of lagging indicators include weekly sales dollars, monthly gross margin, monthly operating income, etc.
You and your team determine what these KPIs are and what makes the most sense to track and focus on while executing the plan.
Do you know your cholesterol number? If so, what does it mean? Just having your cholesterol number from a blood test does not tell you much, unless you know if you are above or below the healthy number where you should be, or your previous years’ numbers. Then you and your doctor can determine the most appropriate actions to get that number where it should be to stay healthy. Likewise, your KPIs have to benchmark against your own industry, your region, etc. Otherwise, how would you know if you are ahead or behind the industry curve? If you don’t benchmark regularly, be aware that your bank or financial institutions do. So if for no other reason, why not get familiar with your numbers so there are no surprises from them?
Numbers can be hard to understand, but it doesn’t have to be that way. As long as you know what to look for, what to compare and benchmark against and what it means to your business, you can leverage these powerful numbers to aid your probability of success in 2015 and beyond.
 McChesney, C., & Covey, S. (n.d.). 2012. The 4 disciplines of execution: Achieving your wildly important goals. Free Press.
Chia-Li Chien, CFP®, PMP®; Chia-Li “like JOLLY,” Succession Strategist of Value Growth Institute, dedicated to helping private business owners increase their company equity value. She is the award-winning author of the books Show Me The Money and Work toward Reward. Chia-Li is an Instructor & CFP® Program Director at Ball State University and Adjunct Faculty of the American Management Association. Her blog and newsletter was named a Top Small Business Resource by the New York Times You’re the Boss blog. Schedule your appointment today!