Know Your Numbers: How to Track Metrics and Money in Your Business
By Daniel DiPiazza
I was never a “numbers” guy.
This self-perception began in school, an environment second only to the womb in its ability to shape us for life.
In my case, I was praised early on for my mad skills in reading and writing. This led me to lean into those areas and I developed a deeper interest in writing essays than solving arithmetic early on, which garnered more praise and created a positive feedback loop.
By 3rd grade, I can distinctly remember thinking, “I’m not too bright at math, but at least I can write purty good.” And look at me now. 30 years later, I’m a published author in multiple languages. Anything is possible, kids.
My experiences through school continued to confirm my own biases into my professional life — and I was never as comfortable with numbers or data as I was with words and ideas. In most career fields, I don’t think this would have been a problem. We all have strengths, and it’s often more fun to build upon those than to work on things that don’t feel as natural.
But business is a different monster. I believe that to become an effective entrepreneur, you have to be a bit of a polymath.
The world’s most visionary and iconic leaders have almost always had deep skill sets in or at least a working understanding of many different fields. Justine Musk, ex-wife of Tesla founder Elon, wrote an incredibly insightful piece on Quora detailing how ultra-successful entrepreneurs bridge the gap between fields and solve enormous problems by connecting dots that others can’t see.
Your ability to identify, accept and strengthen the areas where you’re weak will determine how strong you become as an entrepreneur. It’s a sick, cosmic joke.
I can’t think of anything entrepreneurs struggle with more than metrics and money.
Yet these areas of business are so tied to our ego and our perception of “success” that we are scared to talk about them. Our impostor syndrome gets triggered because we feel like we should have this stuff “figured out” already.
Meanwhile, the majority of entrepreneurs need to make several years worth of painful mistakes and missteps to fully understand how much of an impact knowing your numbers truly has on the trajectory of the business.
It’s a dangerous game we’re playing, friends.
Entreprenuers be like: “LOL, I’m dying!”
This is it. The moment of truth. It’s time for you to step up and take control of your business, with the numbers as your guide.
If you don’t know the answer to each of these questions, you need to read every single word of this article. Twice.
- Do you know how much money your business will bring in this month?
- What are your quarterly revenue goals this year…and have you been hitting them?
- How many leads per day is your business generating?
- How much does it cost your company to acquire a lead?
- How much does it cost your company to make a sale?
- If you close over the phone, what is your close%?
- If you sell online, what are the conversion %’s at each stage of your funnel?
- What % of your revenue goes to operating expenses?
- How much money do you have saved for taxes?
- How much is your company spending each month?
If you don’t know the answers to those questions, or you can’t quickly and easily find the information, you’re in trouble.
The purpose of this rambling diatribe is two-fold:
1. Educational: To show you which numbers you should be tracking in your business…and which ones are a complete waste of time.
2. Actionable: To give you practical, free tools to get your shit together.
I’ll give you fair warning here: this post may be trigger the entrepreneurial PTSD in some readers. Consider this article the equivalent of ripping the Bandaid off your business and letting the air in. It’ll sting a bit, but it’s necessary to heal.
As usual, feel free to leave comments below with else anything you want to know. Now, let’s get to it.
Focus on the Right Numbers…
First things first: Don’t just track everything. Focus on tracking the right numbers.
Legendary Management Guru Peter F. Drucker is falsely attributed to have said: “What gets measured, gets managed.” It’s a good thing he never actually said it, because it’s not entirely true.
Out of context, this commonly-held management maxim doesn’t hold water. Knowing your numbers isn’t about tracking every little piece of information that comes into your business, hoping to control all potential variables.
This is about tracking the right variables, knowing what patterns the information is showing you and taking definitive action based on that data.
In his renowned book, The Effective Executive, Drucker makes it very clear (emphasis mine):
Drucker was a boss
“Working on the right things is what makes knowledge work effective. This is not capable of being measured by any of the yardsticks for manual work.”
As an example, he remarks on how the auto industry could make better design decisions if it looked at accident data not just from a quantitative perspective, but from a more qualitative one that gave meaning to the trends.
“The automobile companies measured only by the conventional averages of number of accidents per passenger mile or per car. Had they gone out and looked, they would have seen the need to measure also the severity of bodily injuries resulting from accidents. And this would soon have highlighted the need to supplement their safety campaigns by measures aimed at making the accident less dangerous; that is, by automotive design. Finding the appropriate measurement is thus not a mathematical exercise. It is a risk-taking judgment.”
Drucker, you are my Obi-wan!
At Alpha Mentorship, we took this sage advice to heart and developed The Dashboard, a simple system for tracking all the metrics inside our business to get a bird’s eye view of what’s happening.
Implementing this tool has given our team so much stability and focus on the right metrics rather than the static. As a result, we developed an entire training around The Dashboard for entrepreneurs in Profit Paradigm to help them implement these ideas rapidly.
The results have been crazy — so we decided to share the google doc (with built in formulas) for you to copy + a piece of the training from Profit Paradigm.
The Dashboard is a centralized, public place for the team to check in on measurable data that relates to their responsibilities and compare the outcome of their actions with the company vision.
If you don’t have a team yet, then this is still a place for you to remain accountable to yourself and get massive clarity on what is and isn’t working inside the business.
The habit of utilizing this tool will elevate your game as a CEO, no matter what stage of the game you’re at.
The goal of the tool is to keep everybody on the team objectively accountable to their own piece of the mission so that the company can hit its goals. We use a simple Google Sheet with a few basic formulas to accomplish this.
It’s simple, but deceptively powerful.
How to use it
The Dashboard lends itself very well to the “Scrum” style meetings that we hold at Alpha every morning at 7am PST. These are quick and dirty, 15-minute daily “stand ups” with two-week intervals between big project goals.
(More info on Scrum here in Jeff Sutherland’s aptly-titled book.)
Every Monday, we use the spreadsheet as a way to check in on all KPIs (Key Performance Indicators) to make sure that we are on track. We spend 15 minutes as a team going through the numbers to make sure that everybody is on the same page.
These weekly Dashboard check-in’s are crucial. You want to have imperfections in the system glaring for everybody to see. This reinforces accountability and responsibility without the emotion.
You’ll also be able to use information from The Dashboard to start looking for “lead measures” rather than constantly reacting to “lag measures.”
If your business depends on closing new clients every month to make money, a common mistake would be only focusing on the number of clients closed at the end of each month. But put your Drucker hat on for a minute.
Number of clients closed is a “lag measure,” because it indicates what has already happened. If you get to the end of the month, look back and see that you didn’t make any sales, that information is readily apparent by checking your bank account — but it’s not entirely helpful because you’re too late to solve the problem.
Stop focusing on just the number of clients closed or dollars brought in (lag measures) and focus on indicators that are predictive of success (lead measures).
Think about the entire customer journey: from stranger, to prospect, lead, sale and retention. Look at how far into the process the sales portion actually is.
Let’s say that you want to add an extra $10,000 of revenue to your bottom line in 30 days. How would those numbers break down?
From this “back of the napkin” math, you can see that if the numbers hold up, you’d need to create 2-3 new prospects per day to hit your goal of $10,000 in revenue for the month.
With this information in hand, you can look for the right data and you’ll instantly know whether you’re on track or not to hit your monthly target. If you’re supposed to be having conversations with 2-3 prospects per day, but you’re only averaging 1-2, you’ll know within a few days whether a course correction is in order.
This sure beats the old “wait until the end of the month and panic” approach. You’re no longer flying blind.
Which KPIs should you track?
Metrics on The Dashboard are dependent on the goals of the company and the leadership team. The only rule is that the metrics should all be specific and measurable. Not subjective. We are looking for numbers, not opinions.
The Dashboard should be updated and reviewed by leadership team on a weekly basis, preferably at the top of the week during stand up.
Each member of the leadership team is responsible for owning their section on The Dashboard.
The Integrator or operations lead is responsible for making sure The Dashboard is accurate, updated and filled out.
(Not sure what an Integrator is? Yeah, I made a video.)
At Alpha Mentorship, we track everything on a rolling weekly basis. This means every Sunday evening, we spend looking at what happened the week before, dropping data from the previous week in The Dashboard, then reporting on that information at our Monday meeting.
Our Dashboard covers 4 broad categories: sales, marketing, operations and finance. Within those verticals, specific key metrics (KPIs) are reported by the team.
If you track nothing else, track these key metrics:
- Cost Per 1,000 Impressions (CPM)
- Click Thru Rate (CTR)
- Cost Per Conversion (CPC)
- Total Leads
- Cost Per Lead (CPL)
- Landing Page Conversion
- Organic social media growth: Instagram, Facebook, etc
- Website traffic and content shares/comments
- Email marketing metrics: sends, opens, clicks, growth, unsubs
- Calls booked
- Calls held
- Followup calls
- In progress
- Conversion %
- Total sales
- Total revenue
- New customers onboarded
- Customer satisfaction or relevant survey data
- Production or delivery metrics
- Weekly new sales
- Weekly recurring revenue
- Total weekly revenue (new + recurring)
Your company might have a completely different set of metrics that are important and relevant. It’s your job as CEO to determine what to focus on.
But once you narrow your focus, never let your gaze slip. Use this tool.
Speaking of the Dashboard, it’s the exact same tool my our student Stephanie used to grow her business. Check out the incredible results her company saw with the Mentorship provided through Profit Paradigm.
student success story:
How Stephanie Doubled Her Monthly Revenue and Transformed Her Business in 90 Days With Profit Paradigm
Founder of SJC Digital Marketing, a San Francisco-based agency that advises fashion, influencer and retail brands.
Before Profit Paradigm: Stephanie had a great product, but a shaky sales process and systems. She did not have a pipeline of consistent leads and was not confident in her closing abilities — often having only a handful of sales opportunities every month and waiting weeks to hear back from companies who couldn’t afford her on proposals that were probably never getting looked at.
Big Win: She increased monthly revenue from $9k/mo to $20,000/month, added $120,000 in annual sales and streamlined all her systems in 90 days with the education, accountability and Mentorship provided by Profit Paradigm.
Here's Stephanie's story:
Money: The Wooly Mammoth in The Room
For about 5 years, I thought I had a business. But I didn’t. I had a complicated hustle that I’d built into a job. And it sucked.
My business and personal finances were mashed together like an ungodly casserole. I had no idea what was actually happening when I looked at my bank account. I saw money coming in and money going out — and I made decisions based on how much money was in the account that day.
A typical purchase decision went something like this:
“Hmmm, I need to pay for a new service / employee / project…do I have enough money?”
*Checks bank account*
“Yeah, there’s enough in there.”
Money: the Wooly Mammoth In The Room
2 weeks later, my account would be dangerously low and not only was I underneath a mountain of anxiety…but I didn’t know WHY it was happening. And that’s the more critical problem.
Over and over again, this cycle would repeat itself. I didn’t really have a clear idea of my monthly expenses, I had no money saved for taxes (“I’ll just pay it in one chunk at the end of the year…just need one big sale!”) — and you can be damn sure I didn’t put any profit aside for myself. LOL. Profit.
Any of this sound eerily familiar?
Entrepreneurs want to appear successful to our friends and family. We want to appear like we have all our shit together. Meanwhile, many of us are in a constant state of panic about finances. We’re always scrambling to make money. And it’s never enough.
Typically, we are making three critical mistakes:
1. We use “bank balance” accounting — we base our financial decisions on how much we have in the bank today, without forecasting or thinking about cashflow tomorrow, next week, next month
2. We use “lag measures” to track our money — traditional bookkeeping is 4-6 weeks behind, so it’s reactive, not predictive.
3. We don’t think of ourselves as the CFO of our company. So nobody takes responsibility for the finances.
Let’s address #3 first and work our way backwards.
Know Your Role(s)
Your company needs a CFO to oversee the money going in and out of the business. But you’re not going to hire somebody to do this right now. In the early days, the CEO is also the CFO until they need or can afford to hire someone better than them.
So strap up, because nobody should know your numbers better than you.
First, let’s take a step back to understand where the role of a CFO fits into the overall structure of the business.
Consider the company org chart according to one of my favorite books, Traction by Gino Wickman. In Wickman’s model (called EOS), there are 6 primary leadership roles in a company, broken down into 2 leaders at the top (Visionary and Integrator) and 4 department heads.
And here’s the important rule: Each role needs to be filled by one person. One person can fill multiple roles, but one role cannot be filled by multiple people.
Here’s a rough approximation of what these roles do:
The Visionary — this is usually the founder/CEO. Responsible for innovations, market/competitor analysis, important B2B relationships, closing big deals and company culture. Steve Jobs, Elon Musk come to mind.
The Integrator — this is the second in command. Responsible for leading, managing and holding other team members accountable. Removing roadblocks, reporting numbers and executing on plans created by the visionary. Sheryl Sandberg and Tim Cook come to mind.
Head of Marketing (CMO) — The marketing director (sometimes the CMO) is responsible for bringing in new leads and everything related to creating a flow of inbound traffic for the sales team to destroy.
Head of Sales — In the early days, the CEO is often head of sales. Sometimes it’s a distinct title. Head of sales is responsible for closing inbound leads, following up and creating new leads via outbound methods. Many people will lump sales and marketing together or say that one is more important than the other. They feed each other and are both crucial.
Head of Operations (COO) — The tasks of a COO vary dramatically depending on the type, size, industry of the business. Generally speaking, they are responsible for production strategy for whatever product or service your company provides to customers. Also responsible for process improvement, forecasting and sometimes tech.
Head of Finance / Admin (CFO) — The CFO is responsible for establishing financial controls and managing cash flow. In this department, we are also lumping things like HR, legal, IT and accounting functions. CTO is a valid hire as well, but it’s lumped together in this example.
If you have 3 people on your team, you’ll all be splitting these roles up. Think about where each team member has the ability to shine and place them where they are motivated to do work that aligns naturally with their interests.
If you’re the only person in your business right now, great! You’ll be wearing all these hats until you can bring somebody in to help (called “delegate and elevate”) — but simply visualizing these distinct roles will allow you to get clarity on which areas of the company need to be strengthened.
In my experience, most CEOs forget that they also have to be the CFO as well — and this leads to poor money management because nobody is “guarding the fort.”
Cashflow Fundamentals: Free Resources For You
As I mentioned at the very beginning of this long ass post, I wasn’t always the best with numbers. I’ve had to learn over my career how to manage both my personal and business finances.
The journey has been annoying at times, but ultimately, extremely rewarding. There’s no way I can give a proper run down of every little lesson I’ve learned over the years in one go. I simply do not have the patience to sit and write that.
Instead, I’ll point you to some of the best resources on business cash flow fundamentals that you simply must understand if you want to succeed as an entrepreneur.
Profit First by Mike Michalowicz is a must-read for understanding the fundamental components of business finance and how to actually keep more of the money you’re making. I can’t recommend this book enough — which is why it’s required reading inside of the curriculum for our advanced students in Profit Paradigm.
You should also listen to EP095 of The Daniel DiPiazza Show on foundational financial principles for entrepreneurs. In that episode, I give you all the bullets you need to know for cleaning up your business finances, in 25 minutes.
- The three layers of financial responsibility in a company. [ ]
- CEO Professional Bookkeeper Accountant
- Why you should stop bank balance accounting. [ ]
- How to get a clear understanding of your fixed and variable weekly expenses. [ ]
- Learn how to allocate your money. [ ]
- Where to find info about the common characteristics of thriving companies. [
Mike Michalowicz’s Profit First System in a Nutshell
Profit First is a simple accounting system popularized by author and entrepreneur extraordinaire Mike Michalowicz that takes the age-old concept of “pay yourself first” and creates a tangible model for business owners to predictably make much more money through better financial management.
The book is required reading for this entrepreneurs in Profit Paradigm. Actually, I recommend getting TWO copies. Get the audiobook to run through it first and the physical or digital copy to refer back to as a reference.
This section will serve as an overview of the basic concepts behind the Profit First accounting system so that you can get up and running even more quickly.
Which of the following triggers resonate with you?
- Constant anxiety, stress or panic related to how much money is in your bank account. Not wanting to look at it because of how low cash flow is.
- Cycles of financial boom and bust that seem to go up with the tide and a constant position of needing just “one more client” or a “big launch” to meet cash needs.
- Disorganized and erratic spending. Having a “good month,” then looking back and wondering where all the money went.
- Being completely unprepared for taxes and having to scramble to find the money every year.
The sad truth is that if you’re like many outwardly “successful” entrepreneurs, you’re keeping your personal life afloat paying out of your company account.
You’re moving money around to cover overdraft fees when you have a bad month. You’re sometimes forgoing your own salary just to keep the business alive.
It has to stop.
Here’s what you need to know…
You, the CEO, are the most valuable shareholder in the company. But you aren’t getting any distributions…
You deserve to profit from all the work you’re doing for your company, but you’re not setting any money aside. Because it feels like you can’t afford to.
Setting aside the profit first will actually help you grow, not hinder you because it forces you to create separate “plates” for your income when it comes in.
Remember: we are building your business into a sellable asset.
PFA (Profit First Accounting) vs GAAP (Generally Accepted Accounting Principles)
Like many things that deliver extraordinary results, the PFA system is counterintuitive.
Traditional accounting says that profit is what’s left after you subtract operating expenses and taxes from total revenue. Profit First flips the model on it’s head by beginning with total revenue and subtracting a predetermined amount of profit ahead of time.
The remainder of the money after profit is to be used on operating expenses, taxes and owner pay.
- GAAP: Revenue – Operating Expenses = Profit
- PFA: Revenue – Profit = Operating Expenses
The main idea here is to create 5 smaller “plates” so that every dollar of revenue is split up and divided into the right place every month.
Twice per month, the revenue from the business comes in and is distributed to the correct plates sequentially. This removes temptation to continue doing “bank balance” accounting. It also enforces a rhythm with your finances that keeps your cash flow predictable and grows your margins over time.
How to Setup Your Bank Accounts
In order to create the system, you’ll need two banks: one that’s your primary bank (Bank 1) and another secondary bank (Bank 2). I know this is a pain in the ass. Just do it.
The secondary bank is where you’re going to send profits and taxes for safe-keeping every 2 weeks. You don’t want to have access to this account with a debit card. Under no circumstances are you to “rob” yourself.
Seriously. You want to make it very annoying to get money from this account. At each bank, you will need various accounts.
At your primary bank (Bank 1), you’ll need 5 accounts:
- INCOME: where all your incoming revenue comes in. Money is divided from here and sent to all other accounts.
- PROFIT: This account is where you keep your profits before anything else.
- Owner Pay: The account you pay your own salary out of.
- Operating Expenses (OPEX): Where you pay business expenses, employee salaries, sales commissions, etc.
- TAXES: Where you separate taxable revenue to be paid quarterly.
At your second bank (Bank 2), you’ll need two accounts:
- PROFIT: This account is where you accumulate profits that you do not touch. Owners receive quarterly distributions from this account.
- TAX SAVINGS: This is where you save for quarterly taxes. Do not touch.
The basic monthly sequence looks like this:
- Money comes into INCOME account at Bank 1 — it is split into Profit, OpEx, Owner Pay and Taxes at Bank 1
- On the 10th and 25th of every month: pay salaries and owner pay from accounts at Bank 1, move money from Profit and Tax accounts at Bank 1 to hold accounts at Bank 2
- Quarterly: take distributions from profit account
Note: there are many technical elements of setting this system up that Michalowicz goes into great detail inside of his book. You need to know this material, but there’s no possible way I can cover it all here. Read the book. No exceptions.
How do you know how much money to allocate into each account every month?
First, you need to understand your CAPs (Current Allocation Percentages).
The simplest way to do this is to just look at your last year of spending inside of the business and see how much money went to OpEx, Owner Pay, Profit and Taxes.
Once you know your CAPs, you can begin to determine what percentages you should be aiming for. These are your TAPs (Target Allocation Percentages).
Recommended TAPs based on revenue according to the book:
Which revenue range is your business in?
These are the numbers that you’re aiming for, but not where you’ll start. The goal is to move closer to these numbers (from your CAPs to your TAPs) 3-5% total every quarter until you reach them. Then, try to exceed them.
Your Journey Starts Now
This is a lot of information to digest, but I hope you can see the dots connecting here.
Your ability to navigate the numbers in your business really comes down to understanding the metrics and properly managing the cash flow. Nobody is born with these skills. We are all standing on the shoulders of giants.
As with all things in entrepreneurship, experience is the real teacher. Nothing can replace being on the battlefield. However, there are methods for accelerating the pace of your progress.
And in my humble opinion, You wouldn’t have made it this far down if something in the article didn’t speak to your soul.
The way I see it, you have a few options from here…
Option #1 (90%+ will choose this one):
You can make the best use of the material already available to you for free/cheap online. Pretty much everything is available for free on YouTube if you know how to search for it…which is the reason why information has been so commoditized in the first place.
To make it easier, I even got the search started for you.
If you feel like splurging: Grab something off Alpha Mentorship’s curated booklist.
Work with a friend to keep you accountable, find an experienced mentor who is willing to work with you…and get after it.
Option 2 (for the small minority who have been reading this article and nodding the entire time):
Want help implementing everything we covered today? That’s what we do with our entrepreneurs in Profit Paradigm.
Profit Paradigm is not an automated “course” full of useless videos. It’s a real Mentorship program with actual humans educating you, holding you accountable and coaching you through the tough spots.
It’s not for everybody.
We can only work with entrepreneurs who:
- Are past the “idea stage” and have an actual business that’s producing consistent monthly revenue.
Ideally you need to be making an average of $7k-$10k per month to afford the program comfortably. On average, our entrepreneurs start the program making right under $10k per month and leave making $25k+ in 3 months. Some do 3-5x. Your mileage may vary. If you’re making less than that, totally cool. Start with the free stuff mentioned until you make more.
- Are ready to get their hands dirty. We are going to ask you to read, write, learn, think and contribute.
This is not passive. There is a lot of ground to cover and we have a high standard for excellence. We will expect you to show up at meetings every week. We will expect you to take all you can from the live Mentorship sessions. We only roll with the very best. That’s how we can guarantee your growth.
- Are not afraid to be challenged and are open to feedback with the intention of making you better.
Nobody is here to bruise your ego. Everybody is here to help you transform into a better entrepreneur and leader.