know your numbers

“Know your numbers” is now what I use to make every decision to successfully manage the growth of my business.”

By Greg Norton

Know your numbers”. How many times

have you heard that phrase? For me, I have heard it hundreds of times, but honestly, it never really sunk in until I started my video & creative production company. “Know your numbers” is now what I use to make every decision to successfully manage the growth of my business. In this article, I am going to share with you the process I use to make sure I am growing, but more importantly, staying profitable.

How Much Does It Cost To Run My Business?

The first step my process was to know how much it costs to run my business. It seems obvious, but if your costs are greater than your revenue, well, we all know what that means…good try though. I simply added up all of my expenses for the year and divided that out based on a 40 hour work week (yes, of course we all work more than that). In other words, let’s say that all my expenses for the year totaled $80,000. That means that it costs me $38.46 per hour to run the company. Be sure to include all of your expenses including rent, salaries, software, equipment, loans, office supplies, etc. It is important to understand that there will be fluctuations to this formula based on unforeseen circumstances. Just adjust accordingly. If you already do budgets each year, this step is simple because you have already done the work. If you don’t do budgets each year, well, this is your expense line so you are are half-way there.

Creating Estimates Based On Your Company Cost

Now that I know how much it costs to run my company, I needed to make sure that the sale price of my services was profitable. In the above hypothetical example, if it costs me $38.46 to run my business, and I am selling my services at $25 per hour, I am losing money. A lot of money. I need to make sure that I am on the other side of that formula. Of course, creating your sale price is the result of many factors. In my company, my pricing is based on industry standard, local market, competitor pricing and profitability. In addition, I have multiple services that vary in sale price. You need to create your sales price on your appropriate factors and run that against your company cost. Once my sale prices are in line, I created a spreadsheet to assist me in creating my estimates. This spreadsheet allows me to be consistent, monitor profitability out of the gate, and make adjustments to sale prices based on factors that could affect my bottom line. A real world example could be that you offered a discount for a client. In your spreadsheet, you could adjust pricing accordingly while making sure that you did not jeopardize you profitability. Another example may be that you have different pricing scenarios based on your local competition, again making sure you

don’t price yourself out of profitability. Want a copy of my spreadsheet? Click here.

Track Your Time

My company, Whiplash Film & Creative, is in the creative services industry. That means that most of my services are time/effort based. What that really means…EVERYONE IN MY COMPANY TRACKS THEIR TIME. Yep, now I know that some of you are going to turn the page to another article but hear me out. If you don’t know how much time you are spending on a project, you don’t know how profitable you are. Even as the owner of your company, your time has value. Also, your employees time is key in knowing your profitability. I track all of my time, no exceptions. I have a simple timer program that allows me to start/stop the timer and select what service I am timing, whether it be video editing, shooting or creative services. This information is gold when assessing your service pricing and creating estimates. Based on historic information, I can tell you, within minutes, how long it will take me to perform a task. It may seem like a daunting task, but once you get in the habit, it is easy. Trust me on this one.

Bringing It All Home

The last piece I use in my process is how all of these steps pay off. My accounting software has a great feature called Project Mode. What this means is that it allows me to analyze my accounting based on projects. Each client project is tracked independently. My timer integrates directly into my account along with any expenses that are associated with the project. Bottom line is it shows me my bottom line (see what I did there?) When a project is done, and I have followed all of the steps in this article, I see a real report on exactly how much money I made on each project. It would take another full article to go over the benefits of this feature.

The information I have covered in this article works for me. Perfectly. But, it may not work for you without some adjustments. In fact, it may not work for you at all. But the principal is all the same…you need to make money in order to have a business. To say it simply, “I Know My Numbers”.

**For information on what specific software Greg is using for Whiplash Film & Creative, please visit www.whiplashfilmcreative.com/projectsoftware .

Greg Norton is the founder of Minneapolis based Whiplash Film and Creative with offices in Minneapolis and Dallas. With over 25 years of video content creation experience, Greg has produced videos for some the largest retail and B2B companies and continues to grow through unique, effective and efficient video production.

“If you don’t know how much time you are spending on a project, you don’t know how profitable you are.”