One thing I love is to have coffee with other entrepreneurs and chat about business.
What’s your day look like?
How many hours do you spend at the office?
What’s your biggest issue at the moment?
What marketing channels do you use?
The talking points are endless.
There’s one though that’s my all time favourite - if you turn over say $5m or $10m, what do you keep after all’s said and done? In other words, what’s your net profit margin?
This one metric signals how effective the operation is and reveals it's potential. Assuming the company is established. Startups in their first 3 years generally don’t count, and excluding venture capital companies, most of which waste money instead of make money.
Margin indicates whether the juice is worth the squeeze.
It’s also an excellent way to rate your business’s own performance against the competition.
If the industry standard is 10% EBIT (Earnings Before Interest and Tax) margin but you’re keeping 30-40%, that’s an indicator you’re doing great. It's also a sign you've engineered a unique business formula that isn't obvious - otherwise that would be the industry standard.
In business circles, it's easy to get caught up and value metrics like turnover, employee head count, social media followers or even how charismatic the CEO is.
Most of the time these are vanity metrics. It's sexy to talk about $20m turnover, and conveniently ignore that net profits are only $500K.
Margin is where the magic is - and in established businesses, it should be a primary focus of the business owners.
What’s your day look like?
How many hours do you spend at the office?
What’s your biggest issue at the moment?
What marketing channels do you use?
The talking points are endless.
There’s one though that’s my all time favourite - if you turn over say $5m or $10m, what do you keep after all’s said and done? In other words, what’s your net profit margin?
This one metric signals how effective the operation is and reveals it's potential. Assuming the company is established. Startups in their first 3 years generally don’t count, and excluding venture capital companies, most of which waste money instead of make money.
Margin indicates whether the juice is worth the squeeze.
It’s also an excellent way to rate your business’s own performance against the competition.
If the industry standard is 10% EBIT (Earnings Before Interest and Tax) margin but you’re keeping 30-40%, that’s an indicator you’re doing great. It's also a sign you've engineered a unique business formula that isn't obvious - otherwise that would be the industry standard.
In business circles, it's easy to get caught up and value metrics like turnover, employee head count, social media followers or even how charismatic the CEO is.
Most of the time these are vanity metrics. It's sexy to talk about $20m turnover, and conveniently ignore that net profits are only $500K.
Margin is where the magic is - and in established businesses, it should be a primary focus of the business owners.