Are You Aware of Your Business’ Numbers?

It’s no secret I’m … well, I’m a bit of a geek. I save up my spare pennies to buy Lego, I’m reading Caesar in Latin for fun, and I’m bound and determined to beat the Halloween jumping puzzle in Guild Wars 2 this year (edit: nailed it!).

This is probably also why I love numbers and metrics, systems and processes.

Not to mention, the first step to figuring out what works (and what doesn’t) is to actually observe and track what you’re doing, so that you can make adjustments.

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After all, observation and measurement are the cornerstone of the experimental method – and experimentation is key to growing a business.

Start With the Basics: Profit or Revenue

But what do you measure, if you haven’t measured anything?

Well, the most obvious thing to measure and track is profit. Making money is kind of the baseline for running a business. Alternatively, if you have very low (or no) expenses, you may want to track revenues.

When I was reviewing my own numbers from my first year, that’s where I started – tracking quarterly revenues. Here’s how that looked – for the first year, as well as the three quarters previous where I’d been doing some work part-time, on-the-side:

2012_2013_revenue

Tracking Monthly or Quarterly?

Now you may be wondering why I’ve focused on quarterly revenues, and not monthly (which is more common).

In this case, there were a few reasons. The first was that in Canada, there is a requirement that you have to start collecting federal taxes when your revenues for the past four quarters reach a certain threshold. And, in fact, it’s what provided the wake-up call that I wasn’t paying as close attention to my numbers as I should have been.

Obviously, that was an important factor to consider. But I also recognize that my project work isn’t really something that fits into a monthly cycle all that well. Many clients are on multi-month engagements, or have a delay between the completion of the project (ie. the invoice) and the payment, which means that the quarterly approach gives a ‘smoother’ indicator of overall business trends.

But that’s not to say there’s not value in tracking revenues monthly. Here’s what that looks like for my first year and a half or so:

2012_2013_monthly

Definitely not as pretty when you look at it monthly as compared to quarterly; there are quite a few low months, and a one where there was actually NO income – there were invoices that went out, but no money that came in.

That, to me, is one of the biggest indicators of why tracking even the most basic numbers matters: because it allows you to identify things that are working well, and things that aren’t working well.

Even just looking at revenue over time showed me an area that I need to focus on: creating more sources of regular, recurring income so that month-to-month the revenues show the same lovely upward growth trend that the quarterly one does!

Now that we have retainers as a cornerstone of our business model, we don’t have those invisible months. Our MRR (monthly recurring revenue) actually has a value.

Going Deeper

Just tracking overall revenues is a great place to start, because it gives you a really great status snapshot of your business. But I didn’t want to just see a snapshot; to be able to measure my own growth, I needed more finely-tuned levers that I could manipulate. After all, saying “increase revenues” is well and good, but if it were easy to just go out and do that, every business would be extremely successful!