The Hidden Numbers Within Your Numbers
by The One Page Business Plan Company, November 25, 2020
Making sense of all the numbers on financial reports can be challenging to say the least. Setting objectives for the most critical numbers in your business, like revenue, customer counts, or gross profit, is an even more difficult task because of the hidden numbers within your numbers.
In any business, there are activities and outcomes. If you want to achieve a particular goal, you must do something… an activity. Following each of those activities will be some sort of outcome. Define the right set of activities and outcomes for your business and you’ll have a blueprint that will define the work that needs to be done.
We refer to this process as identifying the “numbers within numbers”. Why? Because very critical number or result in your business is a combination of other numbers.
Here’s where it gets interesting…
These numbers are almost always a combination of activities and outcomes.
In setting business objectives, you have three choices. You can set goals for activities, outcomes, or results.
Let’s look at the numbers within numbers for sales as an example. These numbers could be transactions, units sold, retail price, discounts, or a host of other things. Then there’s the number of stores, websites, sales associates, wholesalers, and distributors that are making the sales.
It can quickly get complicated.
But it doesn’t have to be…
Here’s how applying the concept of “numbers within numbers” worked for one of our clients:
Claire (not her real name) was struggling to estimate how big her gourmet food company could be in five years. When asked to estimate sales for this year she intuitively took the number of stores her products were sold in and multiplied by the average sales per store per month times 12.
But when asked how many stores she might envision her products being sold in 10,000 stores at the end of five years. Her response was no! 5,000 stores? No! 1,000 stores? No! 500 stores? No! 250 stores? That sounded doable. 250 stores x $2,000 per store = $500,000. She could set an activity for increasing the number of stores that carried her products.
The second number was sales per store. Since this was a number that she could affect through her activities as well.
In her case, her two critical “numbers within the numbers” for projected sales were the number of stores and the average monthly sales per store. Now her business plan revolves around increasing these two numbers as opposed to simply setting an objective that reads “increase sales by x%” where sales is an outcome objective.
This is planning the way the pros do it. Try it, and over time and you will become more confident about your plan numbers! If you are looking for a way to better track your numbers, check out What is a One Page Business Plan