In my years as an entrepreneur – I think one of the most important skillsets to have, and one that I see a lot of newer entrepreneur and marketers lack is knowing their numbers
Never go into any new ventures or start any new marketing campaigns without thoroughly understanding your numbers. From my experience, it is an absolute pain in the @$ to realize your business is not sustainable AFTER you have invested so much time and money, just because you didn’t crunch the numbers before you started
So, what does know your numbers mean?
From a bigger picture perspective, it means:
- Knowing how many units of items you need to sell / clients you need to secure each month to cover your costs
- Knowing whether the money in your bank will last you long enough for you to reach break even
With these numbers, let’s say you need to secure 50 new clients a month to breakeven, and your business can ‘tahan’ for 5 months before you need to close shop – is this a realistic target for you to achieve?
If it is, congrats – start thinking of ways to achieve and move toward that target
If it isn’t, it’s time to rethink things:
- Does your business model make sense? Is it sustainable?
- Are there any ways to decrease your fixed costs to be able to break even?
- Are there any ways you can increase your average selling price for your product or service?
From a marketing perspective, it means:
- Knowing how much you can afford to spend to acquire 1 customer
- Knowing what are the exact costs that goes into fulfilling 1 order or securing a client
- Knowing how much ROAS (return on ad spend) you need to generate to be profitable. In other words, how much you need to get back for every ringgit you spend in advertising
If you know these numbers well enough, then you will be able to answer the question that has been asked 1,346,376,372 times today – How much should I allocate for my marketing budget?
For example, if you know you can spend a maximum of RM30 to acquire a customer, and you need to generate a return of RM3 for every RM1 you spend in ads – then it shouldn’t be a question of how much you should allocate for your marketing budget; it should be a question of how much can you spend profitably before exceeding RM30 to acquire a customer and getting less than RM3 returns for every ringgit you spend
You don’t want to be limited by budget if you are profitable
When I really understood this, my marketing budget almost quadrupled, and things really started to change for me, business wise
And to come to think of it, if you spend RM1 and get back RM3, and you know it is profitable; why the heck would you want to limit yourself in terms of budget? 300% is crazy returns!
To help you understand your numbers better, I’ve included a basic Google sheets template that helps you calculate:
- Your break even point from a big picture perspective
- How much ROAS you need to generate to be profitable (from a product level)
Hope this template helps! Have fun knowing your numbers!