Leaders: Know Your Numbers

I speak with a lot of entrepreneurs and business owners regularly.  It still amazes me how many of them do not know their numbers.  They focus on the product, the business model itself, the sales, but don’t spend the necessary time to master their numbers. This is not just for the CFO to manage as most leaders are paid on growth of the company so he/she should be intimately familiar with the revenues, expenses, profits and cashflow of the company, or at least their department/division. The leader should also  know the numbers associated with their KPI’s, but I will get to that in a future post.

In addition to these obvious financial numbers, I submit that there are two additional numbers that every leader should focus on – CAC & LTV.  In one of my previous posts, Operating a SaaS Business, I covered these additional financial metrics.  To recap, the CAC stands for Customer Acquisition Costs.  This is typically all the sales/marketing expenses that are incurred in order to acquire the new client.  This metric is important as it allows the leader to forecast based on how conservative or aggressive their sales strategy is. Remember it can cost as much as 5X to acquire a new client than it is to retain an existing one.

The second metric is LTV, which stands for Life Time Value.  In short, this is the NET present value of future cashflows from a client, or simply the projected total revenue you will receive from the customer over the course of doing business together. This number is important because after you have calculated the LTV for your client, if your CAC > LTV, your business model is broken.

Allocate some time over the coming weeks to review and ensure you know your numbers the way a leader should.

If you need help figuring out your numbers, and which ones you should focus on, please reach out to me.