Episode 295 - Mind Your Business | Key Performance Indicators To Scale Your Business | Transcription

Transcription for the video titled "Episode 295 - Mind Your Business | Key Performance Indicators To Scale Your Business".

1970-01-01T01:00:20.000Z

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Introduction

Intro (00:00)

This is 15 Minutes to Freedom. I'm your host, Ryan Adel, and today's episode is Mind Your Business. Today's episode is more business-oriented as I'm going to discuss some key performance indicators that are valuable in helping you grow, scale, and optimize your business. I realize as I sit here in the studio that it has been quite some time since I have shared anything business related. I feel almost obligated to apologize for that. I feel obligated based off of it's part of who I am and what I have done, what I've been through that affords me the luxury to get to share lessons on things that I had not done correctly, which now provides insight on things I know how to do correctly and how to help others do correctly. insight on things I know how to do correctly and how to help others do correctly. The biggest thing that I did not focus on, that now I help people focus on, is establishing the key performance indicators for your business. And so I understand there's a potential, as you listen to this, you're not a business owner. You're not an entrepreneur. You don't have any aspirations of owning your own business. All this actually applies for your household as well. So I'd encourage you to still stay tuned. So I had a coaching call with an incredible client of mine just yesterday as I record this episode. of mine just yesterday as I record this episode. This client and I have worked together for 12, 13, 14 weeks. He's on the backside of his time with me. And we've gotten to the point now of really trying to dial in the variables of his business. Now, he's a franchise owner, a very successful franchise. He owns multiple franchises, right? So there's a lot of moving pieces and parts. And as we've worked on our time together, sure, we work on mindset and limiting beliefs and healthy habits and patterns and communication. I think so often we want to, especially as men, but also as business owners or entrepreneurs, we always want help on the business. I've got to make more money. I've got to figure out business. I can truly say from where I sit, business seems like one of the easiest variables to start working on. That's why so much of this podcast, that's why so much of my time with clients is spent working on them before we work in and on their business. So I put the little asterisk there because we've already done the deep work on him, his operating system. We've upgraded it to the most current model that he's capable or we're capable of uncovering. So as we dive into business, I start asking him some very direct questions.


Key Business Concepts And Clients

KPIs (02:57)

Questions like, what are your fixed monthly expenses? What's the dollar amount? What are they as items? What are your variable monthly operating expenses? What dollar amount do they typically range from? What's your churn rate or attrition rate on client signups and acquisitions? What's your lifetime customer value? What's your payroll and personnel expense? What's your miscellaneous column? What percentage of revenue are you allocating towards marketing, sales, new client acquisition? What is your marketing plan and schematic? How can you track return on investments on your marketing dollars? Right? These are all just rapid fire, right? As I'm sharing these with you, I don't have a list in the office. This isn't written down somewhere. These and a few other variables, I call key performance indicators of your business. Now, having a little bit of an analytic mind, I realized the fact that these things become easier for me now to speak about. They become easier because I started back in, I'll say, this web hosting world was really where all this became massively important to me, where I realized with somewhere between 200 and 400 employees and all different pieces of a sales process to monitor. Customer support expenses, retention rates, merchant processing fees, settlements. I had more variables than I was able to calculate in my head on a consistent basis. But I was intelligent enough to know that these variables mattered like it wasn't enough just to sit back and say like oh they'll figure themselves out or I can look at a monthly profit and loss statement or P&L or say I'm in a cash flow I can look at that on the 15th of the next month and make my decisions I truly feel like had I done that, it would have been a catastrophic disaster. But with having so many variables and having so many different pieces and parts, it would have taken two or three employees to almost be full-time personnel to get me what I needed every morning to be able to make decisions. So I was in a fortunate position to have an entire suite of employees that were programmers, computer programmers, PHP, HTML, Linux, like the whole gamut of people. up a reporting tool that would work through every variable I could possibly see so that we can refresh it from any browser anywhere it was secure I could refresh it I can see you what were the client attrition rate what was my acquisition rate what was the cost of acquisition like what was the average shopping cart total was a lifetime customer value like going through all these different pieces and parts were all incredibly beneficial and important to me because I had to make decisions and those decisions couldn't wait for weeks or sometimes even days to calculate I certainly can't say that I was the best CEO. Can't say I was the best president. I can say I cared a lot about the numbers and the variables. Because they help provide light into dark places. And I say dark places. Those are the places that we either are afraid to look, we don't know where to look, or that we don't know we should be looking. Which comes back full circle to my conversation with my client. I'm asking him for these, I call them KPIs, and he says, well, I think it's about, and it's roughly, it could be as much as an entrepreneur, as a business owner, as someone that's in charge of money. That is a catastrophic place for you to be operating. Especially if you're on the ground floor, if you're a startup, if you're bootstrapping a company yourself, for you to say, I think it's about, is bad. It's really bad. You should be able to sit down and say, look, it cost me $7,447 to run and operate my business every month. My average customer sign-up is worth $92. By the time I work in operational expenses and variable operational expenses, that attrition rate gets down closer to $72. that attrition rate gets down closer to $72. So I know I have to sell 110 memberships or have to bill 110 people a month just to break even. So I know my current client portfolio is 100 people right now. I have to acquire 10 more just to break even. So my goal is to acquire 30 people this month. But client over client, I'm losing 10% of my populace every month for people that just time out. So I have to work on a retention strategy for those 10%. Plus I have to gain an extra 10% above and beyond the 20 that I've already agreed to gain in order to keep a hockey stick type of growth curve month over month, which becomes advantageous if we ever want to talk about an exit. It's a mouthful, right? There's a chance as you're listening, you're like, I don't understand one word of what was just said. So I want to break it down and reverse engineer it for you. If it costs $8,000 to run a business, keep the lights on, pay rent, pay franchising fees, make sure your personnel is paid for, make sure the lights stay on, make sure there's always toilet paper and pens, make sure the software that you use is paid for. Think of all the things that you might have to write a check for this month. That's your monthly operating expenses to me. That's what's required no matter what goes on. Now you might say, but Ryan, they change month over month. Sometimes the heat's more expensive. Sometimes we spend more money on water. Sometimes for whatever the reason, we go through twice as much toilet paper. Okay, so for right now, what I would have you do is do a three-month look back. I would ask you if the three past months seem fairly consistent to you. I'd have you look at your P&L. I'd have you add all those numbers together, and I'd have you divide by three. That's going to give you an average. It's not exact, but it's much closer. So now we can say it costs $8,000 to run this hypothetical, nonsensical business. nonsensical business because it's very easy let's say this is a gym and if you have joined a gym yourself you know typically there's an upfront signup fee and then a monthly billing fee right that's kind of how most gyms work so you start looking how many current paying members do you have right now that you can auto-debit their credit card without having to spend any marketing dollars or any time, energy, effort, or resources to find that client? In this make-believe world, let's say it's 100 clients at $90 a month.


Money Mindset (10:02)

That math isn't very good. I'll do 100 clients at 90 bucks a month. That math isn't very good. I'll do 100 clients at 70 bucks a month. So that's $7,000 versus the $8,000 it takes to run the business. Currently, if you made no shift in your business, you are going to be $1,000 in the hole, which has to come from somewhere. So as I sit here on close to the first of the month and look at what is my strategy and plan, what is the tactic I have to deploy this month to make up the difference in revenue? Well, it's a thousand dollars. And for all things to be equal, let's just say a new client is worth $100. So you have to sign up 10 new clients. That is just to break even. As an owner, you're still not taking home any cash yet. You think, well, why would I want to do that? I work really hard. I'd like to take home cash. Okay, how much cash would you like to take home? Let's go with $3,000. So it takes 10 clients to break even, and you want to take home $3,000, which is 30 clients. Now you need 40 clients total. But if we look statistically over the past three months, every month there's been 10% of the clients that just decided staying at your gym wasn't good for them anymore. They wanted to go somewhere else. So now you're losing 10 over the course of a month. So the 40 clients you thought you needed actually turns into 50 for you to make $3,000. Hopefully you're following me so far. There has to be a plan on the first of the month at the latest on how you're going to acquire those 50 clients. The plan cannot be nebulous, meaning you have to have some time-bound restrictions around it. You have to know what strategies you're going to implement every day. You need checks and balances and systems and processes built around yourself to save you from yourself, especially as a small business owner. So 50 clients saying you're going to be open 30 days this month is, well, I'm just going to round up and say 1.7 clients a day. It would be over as else and say two, right? I need to get two new clients a day. But what I didn't talk about so far is I have three trainers in my gym. And those trainers are more than just trainers. They also get compensated ever so slightly when a new client signs up that they brought into the gym. So I know I need 50 clients. And I have three trainers. And they're all training groups. I think I can get them each to bring in 10 clients. So now I'm going to share that message to them. I'm going to explain to them that's my expectation for them. I'm going to then teach them and coach them consistently on how to do that. And I'm going to hold them accountable every day. Because they need to bring on a new client once every three days in order to hit their obligation to you. they need to bring on a new client once every three days in order to hit their obligation to you but you as a business owner are still responsible now for 20 new client acquisitions but you also have to make up for the potential deficiency in your personnel because all things are not equal and some are going to succeed and some are not going to so what we have to do is say you as a a business owner, you need to sign up 30 clients, one a day. So not only do you have to run the business, not only do you have to worry about the variable and fixed expenses, not only do you have to deal with the headaches of running a business, now you have to train your trainers on how to sell. You have to now hold them accountable for sales, and then you have to go out and sell yourself. But you as a business owner are someone that I call the evangelical leader of your movement. I believe you should be known, especially in the gym industry, around town. People should know you. So think of what I call your customer avatar. That is, if you could write down on a sheet of paper who your ideal top three clients are, you should do that. Not only their age, but their sex, their interest, their socioeconomic standards, what part of town they live in. Every variable you could think of, this imaginary person that could walk into the gym. You want to create three variables of that. You want to create three different versions. From those three different versions, you also want to come up with one person who you just are not ever going to want to work with. You know they're no good because you've had them in the gym before. They mess up the culture. They mess up the mindset. So with all four of these customer avatars laid out in front of you, you sit down and brainstorm. Maybe it's five minutes. Maybe it's an hour. Where are the highest population density areas of these three individuals? Could be anywhere. Maybe it's a library. Maybe it's a local business. Maybe it's a grocery store. Don't know. Only you're going to know that answer. Once you have that answer for each one of those three clients, the three that you want to acquire, now you have to come up with a plan on how you're going to get in front of them. Now, I believe in a grassroots movement, we want to spend as little money as possible. Because right now, most people say, I'll just advertise on social media. That is a whole other rabbit hole for a whole other day. We can get into social media marketing. We can get into Facebook ad spends and Instagram ad spends, LinkedIn, Twitter, email marketing.


Ideal Clients & Places to Visit (15:54)

I'm fine with all that. But what we want to do here is look at what can I do that doesn't have a massive financial burden for me. It's a crazy thing of showing up places, being there, going above and beyond. So you itemize the three preferred clients and you itemize the three highest density population locations for each one of those clients. Now you have nine different places. Well, the average month has 24 and a half working days, so I'm going to say 25. I'm going to be super overzealous and say a couple of these places will be open on Saturdays. So you need to stop by each one of these places three times throughout the month and have a plan. Have a sequential order. you're taking them through. Knowing that the first time you stop into these businesses or the places, you're going to be met with some resistance. People are not going to be warm to you. They don't really know you yet. So all you should be doing in that capacity, in my opinion, is simply seeing how you can add value to their lives. Saying hello, introducing yourself, offering complimentary tips and tricks don't devalue your product don't give it away but see how you can ask enough questions to know how to position your next meeting your goal in meeting number one is to show up be present and be passive we're not trying to go for hard clothes yet and meeting number two now you take some of the information from meeting number one and you apply that to their life like you're solving for their pain points as a gym owner there's a chance if it's a small business that you could work on something to help them lower their expense as far as employee sick days maybe you're gonna lower their medical insurance burden maybe it could be a wellness package because the owner really cares about fitness and his employees don't so much. Who knows what the pain point could be, but you start to introduce the idea that you're there to be able to potentially solve it for them. Maybe some customers sign up now, maybe they don't. Maybe some are interested in coming and seeing what you have to offer, maybe they're not. But by the third time you're there, now it's time to start turning up the heat a little bit. It's okay. You've earned the right. Maybe you show up with some sort of passive gift. Maybe you come in with complimentary diets or exercise plans for anybody that wants one. But now your goal is because you've added value, because you've asked for permission, because you've shown up and been present, now I believe you're fully within your right to say, hey, I want you to do this. And in this situation, it's I want you to come check out my gym and become a member.


Salespeople and Buyers (18:31)

You've earned it. So often as business owners, we're afraid to ask for the sale or demand what we want, but it's because internally we haven't built the value. None of us really want to be sold anything, but I would be hard-pressed to say as you're listening, you don't enjoy buying things. It's been proven scientifically that we get a dopamine dump when we buy things. It's exciting. That's why there's shopaholics. That's why we get credit cards and there's massive credit card debt because it feels good when you swipe something and you get to take it home, even if you know you can't afford it. So it's your responsibility as a business owner to also be the evangelical leader and also be the salesperson. You're just helping people facilitate what they already want, and that's to buy. But while you're doing this and executing this, you're also backfilling and teaching your staff on how to do this. Because they have their own ideal customers. They have their own referral network. They have their own plans, processes, and procedures. What happens is consistently every two or three days, there has to be a check-in. So everybody on the team knows where you're at versus where you need to end up at. And everybody has to be tied into the mission of the company, the vision of the company, and the values associated with the company. Because if they're not, they're not going to understand why they're working for it. There's a reason why they're employees and you're potentially an owner. I hope some of this is making sense to you because this not only works inside of a small business, but it works if you're a salesperson. You're trying to grow your enterprise value inside a larger organization. You're a salesperson. It's a contact sport. Being told no is okay because it's not permanent, right? It's just a temporary like they don't see the value. So then I would encourage you to consider how can I add value to their lives? I'm going to let you in on a secret. There's a specific reason above and beyond my own personal enjoyment. And because I feel good when I do it, then I'm committed to add value every day for four years. Not only is it because I know you get to know me, you get to know my moral fiber, you get to know what I'm about, but it makes it so when I ask something of you, whenever the day comes, come to one of my events, I'm willing to take up a coaching clients, go support this company I have nothing to do with, you have a higher likelihood of actually doing that because I've given you everything I can give you. Admittedly, I don't hold much of anything back on this show. Not only my own shit that I've been through, but also coaching ideas, business ideas, right? I'm going to get into marketing, sales, automation. Why don't I just unload all of it? I don't keep any of this stuff proprietary because I know if I give enough, there's a chance when you're searching for something, you'll think of me. And even if that's not the case and you just consume the content for the next four years, I'm honored to be of service to you and be a part of your journey. I can tell you when you're in sales, when you start adopting that mindset, life becomes easier. This is a never-ending quote-unquote game for me. I'll be podcasting and helping people change their lives from now until forever. So I'm not really concerned about today. Just as in sales, you should not be that concerned about today either. Today is all we have, but we get a series of todays. So I want to recap the business side of this conversation.


I- identifying the issues of the business still needs sales (22:06)

A small business owner, $8,000 to run the business, $7,000 a month of reoccurring revenue, $1,000 deficiency. Needs 10 clients, but is going to lose 10 clients, so he really needs 20. But he or she wants to make $3,000 above and beyond operating the business, so you've got to sign up another 30 clients above and beyond that. You understand the facts of the situation now. We're not running from anything. We have facts to deal with. From a position of factual information, you come up with a plan. Part of that plan is disseminating the information down into your organization and making sure they buy into the mission, vision, and values that you are instilling in them. Part of that plan is disseminating the information down into your organization and making sure they buy into the mission, vision, and values that you are instilling in them. Part of that plan is you have to work your plan as well to lead from the front and lead by example. Part then is that you must train the people that work for you on how to work like you. Part of this then is backfilling in in a consistent and systematic way to ensure there's check-ins along the way if you're on pace, if you're behind pace, or if you're ahead of pace. Then you have to execute the plan, take inventory in stock of if the plan worked by the 30th of the month, and then recalibrate a comparable plan for the next month. That's what business is. We can talk about goal setting for one year, three years, five years, 10 years. We can talk about IPOs and exit strategies, talk about all that fun stuff. Love it. That'll be another episode for another day. But another stuff matters if you don't focus on the now, right? We got to get the cashflow stable in the business. Because without cash flow, there is nothing really. You're eating into your own savings and you're not really a business owner. You're a slave to the business. So this is a whole different way to start unpackaging some of the pieces and parts as far as business, sales, automation, that I would love to add more value to. I would love to start opening up this show for business-related questions. I'm going to have more entrepreneurs, more business owners on the show, and we can dive deeper into the issues that you're having as a business. As a complete side note, one of the questions I get quite often is, I think I need to raise capital. What do you think? I think as someone that has raised capital before, it dilutes your equity typically. So when I own less of what I want to, what I create, when I'm the one that's in the trenches and I'm giving up stock, for lack of a better term, ownership percentage to someone else that's not actively involved. Now I have to answer questions that I don't really want to answer. I'm okay with pieces and parts of it, but I don't inherently like that. So I personally believe, unless this is strategic play because you're burning cash, I would never take on capital. I don't think most businesses really need it. Unless there's a strategic partnership that can be established because the person that's investing and infusing capital fills a deficiency that you have in your organization. We'll take this gym for instance. Perhaps you just realize you're just not a good salesperson. You're great at numbers, you're great at automation, you're great at systems, but sales is just not your area of expertise. To raise capital from someone that's not a master in sales, that's not willing to come in and train your staff, to me is a misalignment of goals. Anybody can give you money. They're just expecting a return. But how do you leverage a need for money into filling the holes in your boat? You find the right person to give you money that fills the hole. And when it's time to do that, you'll kind of know because you hit a carrying capacity where you won't be able to grow anymore without some sort of external advice. So whether that's a business coach, whether that's a mentor, whether that's a capital infusion with someone who's going to come in and be more active in the business, there's all types of ways to start to grow and scale. But it's my recommendation to delay, delay, delay capital. but it's my recommendation to delay, delay, delay capital. I don't have an efficient way to wrap up this episode because it's been so business-minded, but I can say we just have to always be clear on the facts. As it pertains to your body, you have to be really clear and honest about where the facts are in your life. You can say, I think I'm 10% body fat and I know I'm 200 pounds, but until you go get a DEXA scan done or sit in a bod pod and really figure out the actual fat on your body, you're just guessing. It's not factual data. Without that, you don't know your resting metabolic rate. You don't know some variables that are required to figure out how to have you efficiently and effectively lose body fat, but retain or gain muscle mass. It's very difficult, so I would encourage you to find the facts there. As it pertains to your relationship, maybe you don't want to admit the fact that you don't really get the warm and fuzzies from your partner. The facts of life are painful that you might have to be alone.


Understanding And Managing Business Fundamentals

Knowing the facts of Business (27:19)

The facts of life are you're not good at communication or you don't feel like you're being heard. The facts of life are you should share that and get some more feedback and input from people. Then this whole episode has been about the facts of business. If you don't know the very basics on what it costs to run your business, the revenue you bring into your business, what your plans are for the business and an executable plan for that plan, you're shooting yourself in the foot. And as you look at the scope of work across every variable and dial in the facts of your life, once you have them under control, you'll be able to get shit done. you


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