Smart decision-making is usually based on data comparing sales, profits, and other numbers from the current year to previous ones. But if your company is new, you don’t have that valuable data. How can you know what information you need in order to make decisions that will lead your company in the right direction?
Inc. magazine recently published an article by Don Rainey, an investor in early-stage companies, describing three metrics that will give you insight into your current operations and help with short-term forecasting.
- Pipeline Coverage – To calculate your pipeline coverage, first list out all your sales prospects, along with the projected sales amount of each. Next, estimate the probability of success of each. Then, take the total dollar amount of your sales goal and divide it by the total dollar amount of your pipeline. If you make sure your pipeline coverage is over 2.5, then you’ll have a good chance of making your target. Your probability estimation will give you an idea how good a chance.
- Sales Per Employee – By taking your gross sales and dividing it by the total number of employees, you’ll see your sales per employee. This number will help you not to scale too quickly without ensuring you have the number of salespeople you need to sustain it.
- Customer Payback Period – To determine your customer payback period, you’ll first start by figuring out your customer acquisition cost–the total amount you spend to get a new paying customer. Once you know that dollar amount, you’ll need to estimate how long it will take to make that money back from the customer. This is a valuable metric because it helps you to know how many customers you can afford to acquire with your existing capital and how much money you’ll need in order to grow.
You can use these numbers both to understand what’s working and what’s not, as well as to help you secure outside funding from investors who need to understand your company’s potential.