How to Measure the Health of Your Business with Simon Kelly
In this episode of the podcast, Simon Kelly and Troy Dean reunite to talk about how to measure the health of your business with five key metrics. But it’s not just about measuring positive or negative cash flow. The scorecard they present assesses both the health of your business as well as you the business owner. Watch the video or keep reading below to find out why that matters.
Watch the Video
A Look at Simon’s Daily Review System (2:30)
Every day, Simon reviews the current state of his business.
- When things work out well, they go under the “Plus” column.
- When things don’t work out well, they go under the “Minus” column.
- When he identifies opportunities for improvement in the future, they go under the “Next” column.
It’s a very simple system of review, but it allows Simon to move all of his business-related thoughts, concerns and plans onto a big whiteboard.
“Self analysis can tire you out if you don’t put it down somewhere.”
What’s especially great about this system is that it helps him focus on the positives. Because most items get slotted under the “Plus” column, he’s gotten into the habit of celebrating every win instead of dwelling on the negative.
This is just what Simon does on a daily basis. Now it’s time to look at what WP Elevation does to help its high-performing agencies evaluate the health of their businesses quarterly.
5 Metrics You Need to Measure the Health of Your Business (7:15)
Recently, Troy wrote a blog post about entrepreneurial burnout. He introduced a set of KPIs that WP Elevation uses to help its agency clients measure the health of their businesses and plan for the months ahead. Because there was so much interest in the 5 metrics touched upon, Troy and Simon decided to dig into them a bit further today.
Download the Quarterly Review Template
Before you move on, grab a copy of this free scorecard so you can measure your own quarterly results.
Use this template to measure the health of your business and you, the business owner, using 5 key metrics and self-coaching questions
Metric #1: Monthly Revenue
This is the amount of revenue your business makes in a month.
Now, if the majority of your revenue isn’t recurring and your cash flow has its ups and downs, don’t just pick the higher number from the last three months. Total up your revenue from the quarter and then divide by three.
Think of this number as a barometer for how well you’re doing in terms of delivering value to clients. If that number isn’t where you need it to be, set a new goal for three months from now.
Metric #2: Monthly Recurring Revenue
This is the amount of recurring revenue your business makes in a month.
Recurring revenue comes from contract work like monthly maintenance plans, marketing services, strategy sessions, WordPress retainers, and so on. If you receive payment on a predictable schedule over a set period of time, that’s the segment of your monthly revenue that’s recurring.
As far as what you do with this number, the goal is to make as much of your total monthly revenue recurring as possible. So, keep an eye on the disparity between Metric #1 and Metric #2 as you make plans for the coming months.
Metric #3: Profit as a Percentage of Revenue
This is the percentage of monthly revenue that becomes a profit.
As a baseline, you want your profit to be no less than 35% of your total earnings.
Your profit is the amount of money left over after expenses are paid. However, your salary as a business owner should not be counted as an expense. Only include the overhead costs that leave your pocket. Everything else goes into the profit line.
If you’re not hitting the 35% baseline, then you know you have some work cut out for you in the next quarter. And if you are hitting it but you’re unhappy with the size of the margin, start working on a plan to fix it.
Metric #4: Days Off Per Month
If you’re working around the clock seven days a week, then the earnings you’ve calculated above aren’t going to depict a realistic portrayal of what’s going on. This goes back to the topic of burnout and how it can easily kill your business’s momentum (as well as your enthusiasm for it).
So, it’s important to calculate how many days off you’re actually taking each month to recharge.
As Simon and Troy explain, a “day off” is any day when you don’t do things like:
- Think about work.
- Check Slack.
- Respond to work emails.
So, on the days that you’re able to successfully disengage from work, count that as a day off.
If you’re not taking enough time for yourself, for your family, or simply just to recharge, something needs to be done about that in the months to come.
Metric #5: Percentage of Week Spent in Your Sweet Spot
The last metric to calculate is the percentage of the workweek spent in your sweet spot.
The sweet spot is the overlap between what you’re skilled at and what you’re passionate about. When you focus on these kinds of tasks, you’ll find yourself feeling more energised and inspired, even after a long day of work.
To calculate this number, break your days up into AM and PM. Then, add up how many of those slots were strictly spent on sweet-spot tasks.
If you’re having a hard time getting through the workweek and feel like you’re always behind, it may be because you’re not spending enough time in the sweet spot. This calculation will help you reconfigure your workload as you move into the next quarter.
You need to have an idea of where you’re going with your business if you’re going to steer the ship in the right direction. And only by examining the key performance metrics above will you be able to make smarter choices for your business. You’ll also be able to avoid the entrepreneurial burnout that seems to affect so many of us — Troy included.
“I need to watch Mariska Hargitay run around Manhattan and shoot people. I just cannot deal with any s*** tomorrow.”
His advice on how you can use those metrics to your benefit? Get very clear on what your sweet spot is and where you add the most value. Then, focus on building profitable recurring revenue streams within that sweet spot. It’s the most effective way to get to where you want to be.
If you want some help getting started, there are a number of things you can do.
To start, download the Quarterly Review Template, and start tracking your numbers now.
Then, join the Digital Mavericks Facebook group and connect with others working out their plans for the next quarter.
Finally, take some time to explore WP Elevation’s courses. If you want to spend less time on Up next is the Facebook Ads Accelerator course where you’ll learn how to use ads to get the right kinds of leads on the phone and quickly close deals with them.