Do You Know Your Numbers, Coach?

Uncategorized Jul 20, 2018

Lesson 2: Know Your Numbers

 

“What you get by achieving your goals is not as important as what you become when you achieve your goals.” — Zig Ziglar

 

When most people think about financial targets; they think about what their accountants speak about: P&L, Balance Sheets, Liabilities, Revenue and Net Profit for example.

That's all well and good, but, that's measuring the effects of your business efforts, not the cause. 

And that's problematic, because you're always observing the effect of your behaviour without being able to influence it. 

So, to spare you a lecture on the importance of the 'effect metrics' (because I'm sure you already know about it), I'm going to teach you about 'cause metrics'  so, you can actually do something about it.

Remember last week how we spoke about your Growth Levers -- leads, customers, frequency and value? Well, without knowing these cause metrics we're about to teach you, you won't know when pulling on those Growth levers will work for you, or hurt you in the long run. 

So let's get stuck in shall we?

 


 

In this lesson, we're going to establish four financial targets, which adds to the first (and most important) metric which you did last week - Your Average Lifetime Value of the Customer (AVLC).

The four targets we're going to establish (five when you include AVLC), are:

1. Cost Per Lead (CPL)

2. Rate Of Conversion (RC)

3. Cost Per Acquisition (CPL)

4. Net Profit (%)

Now, if you've been around the business bush for any length of time; you've probably already heard of these metrics, but since you're doing this course, you probably don't know them.

Well, let's change that :) 

Note: If you don't think this is relevant to you, you're seriously misguided. This will dramatically change how you run your business. 

Here are some reasons these metrics are so important:

  1. It can measure the the effectiveness of your business assets (brochures, collateral, courses, equipment etc)
  2. How efficiently you are utilising your revenue streams (if you have more than one)
  3. How much you can afford to invest to acquire a new client (almost no one knows this and is therefore scared to spend anything at all)
  4. Opportunities to optimise client acquisition
  5. Opportunities to increase the value of each client 
  6. Measure the productivity of your employees/sub-contractors
  7. The health of your business, it's security, and viability.

1. Average Lifetime Value (AVLC)

This metric is exactly what it sounds like: it represents the average value of your customer over their lifetime as a customer.

This is a per-customer number that takes into account all purchases of products, add-ons, and services you sell; from t-shirts, to workshops, to your face-to-face sessions. 

This could represent a one-off payment (if you sell a training package, or a consultancy package for a body transformation for example), or, it could span the months (or years) that they pay you for coaching and training. 

If this number isn't at the tip of your tongue, front of-mind, you're simply not in control of your business.

If you're wondering why that is, let me ask you a question.

If you don't know how much a new customer is worth to you, how do you know how much you can invest to acquire them in the first place?

And if you don't know how much you can spend to acquire a client, you have no strategy for acquisition. And if you have no strategy for acquisition, you're business is being blown in the wind?

See the problem?

Think of it this way. 

Let's say each new customers average value is $2000.

Would you be willing to spend up to $200 to acquire a new one? 

If so, would you be willing to put $200 behind a facebook ad promoting a guide, workshop, or course ;) (like this one), in order to get more people in front of you so you could demonstrate your value to them?

If you can answer yes, well then, you should. 

Here is why: if you run a marketing drive spending $200 and obtain a new client, and do that a few more times (to confirm it wasn't an anomaly),  then you can invest more $$ into marketing because you know you'll get a 10X return consistently. 

Without it though, that $200 might be money you can't justify to spend. 

Determining the AVLC is going to be different for every coach and trainer (depending on what they're offering is and how they're business is structured), but, it's definitely a process worth investing your time into. 

If you haven't already, jump back into the download from last week and fill out the excel table so you can get this number.

 

2. Cost Per Lead (CPL)

This metric reflects how much it costs for you to acquire a lead (or enquiry). If you're currently renting out space in a facility and doing no external marketing, then this could easily be determined (albeit skewed) by dividing your rent by the number of leads per time period*. 

If you're renting a facility and doing external marketing, it's best to divide these two into two CPL groups - one for internal lead generation, and one for external. 

For instance, let's say you run Facebook ads to attract people into your lifting workshop, a strategic partnership with a Physio where you run a class per week in exchange for referrals, an ad in your local school newsletter (if you train Mum's and Dad's, for example), or like us, free performance testing sessions for athletes, you need to monitor the CPL for each of these strategies individually. 

When you do that, you'll soon find out what strategies work best to acquire leads, and be able to turn up those strategies while you down-regulate less effective strategies. 

*Note: This is not accurate, as it does not reflect what you pay to use the space. However, it is reliable. If you double your leads by establishing better relationships with managers and staff, then the CPL is reduced in half.

 

3. Rate Of Conversion (RC)

Rate of conversion, or your conversion rate, examines the percentage at which you convert a lead to a customer. For hot leads, you'd expect this number to be higher, and for cold leads, lower. Similarly, you'd expect to pay less to acquire a cold lead, than a hot lead. Naturally, the aim is to acquire hotter leads at 'colder' prices; that's when you know you can put money into marketing for a great return on investment (ROI).

 

4. Cost Of Acquisition (COA)

As it sounds, this is the cost to acquire a new customer/client. It's simply measured by dividing your CPL by your RC as a %.

Here is an example:

Let's say it costs you $20 to acquire a new lead (from a workshop, a facebook ad, Google SEO, or otherwise), and your CR is 50%.

$20 ÷ 50%  = $40

Now, you know how much it costs your business to acquire a new client.

If you increased that CR by 25%, your new COA reduces by 33%, down to $26.7 ($20 ÷ 75%).

Like your CPL, your COA needs to be measured per lead source. Workshops should be measured independently of facebook ads, for example. 

 

5. Net Profit (%)

Net profit (%) will vary greatly depending on whether you're a facility owner, a sole trader with a service-based offering, or a sole-trader with a product based-offering. 

Traditionally, most of you will be service based sole-traders, which means you'll have a high net profit.

To calculate this metric, simply divide your pre-tax profit with your revenue.

Here is a simple example:

Revenue: $1000

Take Home: $700

Net Profit: 70%.

By now, you have a basic understanding of the 5 metrics you need, and, the four growth levers in your business. 

 


 

Did you like this lesson? 

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