It is essential to understand the drivers that lead to the profitability of your business. There are six Profit Drivers which will show you how profitable you are or CAN BE.
Most small business owners will be familiar with the drivers, but it may be confusing how they can equal profit. If you want to be profitable you need to deep dive into these drivers on a monhtlhly basis, and more importantly you need someone who can help you translate the result.
A typical monthly financial report may show you the numbers but it does not explain how you got there. It does not explain why some months you do better than others!
This is what CFO level services will help you unravel. You will figure out what services are the most profitable, what percentage of sales your payroll should be, or if you are spending way too much in overhead expenses!
With CFO level services you will no longer be blind to the changing tides of your business. You will be able to CLEARLY see what is most important for your future!
A detailed breakdown of the 6 Profit Drivers are listed out below.
Number of Sales Transactions: The numbers of times your customers are buying every month. There are many ways of looking at this depending on the industry you are in. It could be carts, invoices, or jobs. For example If you are an eCommerce or B+M store than this would be the number of carts that people purchase (or checkouts). If you are a consultant then this would be the number of invoices you generate monthly.
Average Sales Transaction Value: The averaged out amount of each Sales Transactions. Let’s say we are dealing with eCommerce. This would be the average value of all of your carts or checkouts. If you are a real estate owners then this would be the average value of all of the rents you collect on a monthly basis.
Cost of Sales/Goods: What it costs you to offer your job/product/invoice to a customer. Examples would be the cost of the inventory you sold in the month. Or it could be the cost of the time your employees spent directly completing a job or project.
Payroll Expense: Payroll expense is typically self explanatory. The only ways it varies is if you would like to track the expense directly associated with job completion. You would keep any admin/overhead payrolls here as well as the owners payroll.
Marketing Expense: The cost you spend on advertising and should be reflected in a percentage of sales. Marketing is usually directly aligned with the sales produced for most business models.
Operating Expenses: Operating expenses are ANYTHING ELSE. Within reason! These could include the travel expense associated with business or the utilities to keep the building running. Be careful not to overspend in this catergory.