08 Your Ratios and You
Having recently returned from a trip to Austin, where I spoke to the ASMC, a conference for the Association of Apple Authorized Retailers, the folks that are on the frontlines of getting us Apple service and products and helping us use them, I have been thinking about a very common question I am often asked.
A lot of business owners, whether they provide a product or a service, ask, “Can you give me a ratio for _____?” The variables within that question are things like advertising, location, and staffing.
This question is interesting, because it presupposes that there is a magic number for a specific category inside of your business. While there are guideline numbers, and it is certainly advantageous to analyze your numbers, everything depends on your line items and your bottom line profitability. In this installment of Money Morsels I will explain how to look at your trends using three ratios to understand your business better.
Keeping an eye on the cost of goods relative to your overall sales, the expenses relative to your overall sales, and your net profit can greatly benefit your growth, and I explain why I very much encourage this type of analysis.
I will guide you to see why the most important thing we can do with these three ratios is look at trends. If you’ve been in business for any length of time, you can start to look at where these factors are trending. If you see the factors change in a positive direction, do more of what you’ve already been doing! If they’re trending in a negative direction, however, you need to start tweaking!
In this Money Morsels installment, I will walk you through a proper way to analyze your progress and explain how trend analysis can help you answer questions such as:
- Am I getting more profitable over time?
- Is it costing me more to provide my goods or services or less?
- Is my net profit better or worse?
- When is it beneficial to compare my benchmarks to others in the industry?
In this discussion, it becomes obvious that it is extremely beneficial to empower yourself to understand yourself and your business progress above anyone else. Because there IS not magic ratio that can be applied to everyone (after all, businesses are all shapes and sizes even in the same industry!), I explain how you can pay attention to specific factors in order to see your own movement through the time that you’ve been in business.
MoneyMorsels explains ratios. Which factors should be analyzed to chart YOUR business growth? [TWEET THIS]
Join me once more as we learn to compare ourselves to ourselves, learn to analyze our metrics by paying attention to a group of select factors, and begin to see what’s working and what needs some reconfiguring.