Making sense of the numbers within your business can be challenging. Setting objectives and goals for the critical results in your business like sales, number of customers and profit, is difficult for most of us.
So let’s make it simple! In your business you have Activities and Outcomes. If you want to achieve a particular goal, you must do something. (Activity) Each of those activities has a result. Let’s call those Outcomes. Define the right set of Activities and their Outcomes for your business and you have formulated your recipe for success. You have also defined the right work to be done!
I call this the process of defining the “numbers within numbers”. Every critical number or result in your business is a combination of other numbers. These numbers are almost always a combination of Activities and Outcomes.
In setting goals or objectives you have three choices. You can set goals for 1) activities, 2) outcomes or 3) results (activity count x outcome/activity).
Let’s look at the numbers within numbers for sales as an example. There are number of transactions, units sold, retail price, discounts, etc. Then there are the number of stores, websites, sales associates, wholesalers and distributors who are actually making the sales.
Stuck? Having trouble estimating sales for next year? Or in 3 to 5 years? Here is a real story about how applying the concept of “numbers within numbers” worked:
Clarine Hardesty was struggling with estimating how big her gourmet food company would be in five years. When I asked her to estimate sales for this year she intuitively took the number of stores her products are in and multiplied by the average sales per store per month times 12. (16 stores x $2,000/store/year). Then I asked how many stores could she envisioned her products being in at the end of five years. She said she did not know. I asked is 10,000 stores possible, the instant response was No! 5,000 stores? No! 1,000 stores? No! 500 stores? Response was maybe. 250 stores? That sounded doable. 250 stores x $2,000 per store = $500,000. That is the number Clarine decided made sense to include in her Vision Statement…at this time. Obviously over time it will get refined.
In Clarine’s case, her two critical “numbers within numbers” for sales are the number of stores and average monthly sales per store. Much of her plan revolves around these two numbers.
If you get stuck or confused estimating any of the critical numbers in your business, stop… then begin thinking about the numbers within the number you are trying to estimate. Break the critical number into 1) activities and 2) outcomes. Test out various values on the activities and outcomes until you feel your estimate is pretty good. This is not guessing, this is estimating the way the pros do it. Try it, over time it will become much more natural and you will become a lot more confident about your numbers!
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