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Paul Burri: Know Where You Are to Get Where You Want to Be
I once heard that you can’t get to where you’re going unless you know where you are (starting from). That is so true in business.
I was visiting a business acquaintance recently and he told me — somewhat proudly, although I can’t imagine why — that he had lost $45,000 last year in his business. This was about midyear, so I asked him, “How are you doing this year?” He ignored my question and changed the subject. He later mentioned how much he had lost last year, and again I asked him how he was doing so far this year. I asked him three times, and each time he ignored my question.
Driving home, I realized he hadn’t answered me because he didn’t know how he was doing. Apparently he doesn’t know how his business is doing until the end of the year, when his accountant prepares his year-end statement. (From experience as a SCORE counselor, I know this is not as unusual as one would expect.)
But how can you manage a business if you wait to look at how you’re doing until the end of the year — when it’s too late to do anything about it? That’s like waiting to see your doctor until you’re so sick that there’s nothing he or she can do to save you.
When I owned my last business, in which most of what we sold was a custom product, almost all of our sales were generated by quoting on customers’ requirements. A customer would call us and request a particular custom product, and we would respond with a quotation.
Each month we compared the number of sales against the number of quotes we had sent out. Each month our sales/quote ratio was 55 percent to 65 percent, which means we would convert about 60 percent of our quotes into a sale.
Each month I would watch this data very carefully. If the ratio started to drop to anything below 50 percent to 55 percent, it would alert me to possible problems from increased competition or other economic factors. On the other hand, if the ratio began to climb too much over 65 percent, it would indicate that our prices might be too low. (I never wanted to get 100 percent of the business, by the way. That would have meant that our prices were way too low.)
In addition to watching our monthly sales/quote ratio, I watched our sales performance on a daily basis. Sometimes just listening to how often the phone rang was an indication of how good sales were going to be that month. Fewer calls meant fewer quotes — and that meant fewer sales. (On very slow days, I’d find myself picking up the phone to listen for a dial tone to be sure the phones were still working.)
If we were starting to develop a slow month, I would do something — usually bid a bit more competitively — to correct the situation.
If you don’t know where you are, you’ll never get to where you want to be.
— Paul Burri is an entrepreneur, inventor, columnist, engineer and iconoclast. He is not in the advertising business, but he is a small-business counselor with the Santa Barbara chapter of Counselors to America’s Small Business-SCORE. The opinions and comments in this column are his alone and do not represent the opinions or policies of any outside organization. He can be reached at .(JavaScript must be enabled to view this email address).
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