Episode 39: Your Numbers Story™

In this episode of The 7% Club, I introduce Your Numbers Story™, a powerful insight for scaling your business by asking 'What Are Your Business Numbers Really Telling You?'

Why Understanding Your Numbers Matters
I highlight alarming statistics: over 80% of businesses fail due to cash flow issues, and only 1 in 10 small business owners truly understand their financials.

The Fundamentals: Key P&L Numbers
Breakdown of sales, direct expenses, margin, overheads, and profit. I explain why margin is crucial and how it funds your overheads.

Margins vs Overheads: A Real Example
I walk through an example where overheads exceed margin, leading to a loss. I show how percentages tell the true story and are more useful than raw numbers.

When Sales Growth Can Be Misleading
Case study: a consulting firm grows from $750K to $1.5M in sales, but profit and team burnout tell a different story. I emphasise manageable and profitable growth over volume.

Client Value vs. Client Volume
A business with 1,000+ customers had only 164, generating most of the revenue. I show how refocusing on high-value clients can dramatically improve performance.

Product Profitability Breakdown
Example from a $13.5M product business: Product 4 contributes just 8% of sales but takes up 50% of warehouse space. I explore margin, contribution, and hidden costs of holding stock.

Final Thoughts
Understanding your numbers beyond top and bottom lines is key. I urge founders to dig into trends, percentages, and strategic insights—not just revenue growth.

💡 Key Takeaways:

• Profitability isn’t just about growing sales—it’s about managing margins and overheads.
• Percentages tell the real story. Always look beyond the surface numbers.
• Don’t overextend your team chasing unrealistic growth targets.
• Focus on your most valuable clients and products, not just the volume.
• Strategic insights come from understanding the story behind the numbers.

Connect

💡 Need help scaling your business from 7 to 8 figures? Get in touch jenny@jennystilwell.com.au

Remember: Better strategy, better business, better life! See you next time!

Transcript

SPEAKER_00: 0:01

Hi there, this is Jenny Stilwell and welcome to the 7% Club podcast for the 7% of business owners who break through 2 million in sales and for those on track to join this club. If you want to upscale from seven to eight figures, you'll need to make some shifts in how you grow, structure and lead your company because you cannot get to 10 million in the same way that you reached your first one or two million in revenue. This podcast is to help you upscale. In today's episode of the 7% Club podcast, we're going to be talking about your numbers story. So what story do your business numbers tell? Now, I'm going to cover some key aspects of managing financials that are going to help founders to have more control over their businesses. And in preparation for this, I did a bit of a search on financial literacy of small business owners, and results came up like more than 80% of businesses fail due to cash flow problems, and only one in 10 claim to thoroughly understand their finances. Now, these numbers are only indicative, but they're still concerning. So if you're going to start, grow and effectively manage a business, you have to understand your numbers. They tell the story of your business. I'm not an accountant and this is not Accounting 101, but what I do want to take you through is what some of the main numbers are that you should be looking at regularly in your business, why you need to look at them and the insights that they provide and how they're going to help you steer clear of cash flow problems. So let's get into your numbers story. So So what are some of the numbers that are important and what do they tell you? So I'm going to talk through a few examples. Now, we've got numbers like sales, direct expenses, margin, overheads, profit. Now, all those types of numbers are just in your profit and loss. So Sales is obviously tracking your revenue each month, direct expenses or cost of goods. They're the expenses that you can directly attribute to your producing your sales figures. So if you've got people who deliver a service, it's the cost of those people that deliver the service that enable you to make the sales revenue. If you're selling products, it's the cost of those products. So what's left after you've subtracted your direct expenses from your sales is your margin. Now, it's such an important figure. I'm always banging on about margin, but that's the money that's left in your business and to pay for all your overheads. So they're all the other people in your business that aren't at the frontline generating sales. They're your regular expenses each month, whatever they might be, whether you still have an office, the rest of your payroll for the rest of your team, any accounting expenses, subscriptions, all those kinds of things that incur most months, those expenses need to come out of your margin. And what's left at the end of the day is the profit. So I'll go through some of those in a minute. And then the other part of your numbers story that's really interesting and most people never look at is the numbers that your clients tell you and your client revenue, the numbers that your products and services tell you that are really, really important. Which ones are making money? Which ones are not making money? And a lot of people don't even know that and they focus on the wrong ones. And then your people. And a question I get asked a lot of the time is, how do we know when it's the right time to add more people to the business? Which is a really smart question because as your business grows, so too do your expenses. And you don't want your expenses to outstrip the rate of growth of your sales. So just having a look at the cost of your people and what what they're contributing to the business is really important as well. So let's first look at the P&L. Now, as we said before, your P&L has got your sales, your direct expenses, margin, your overheads and your profit or loss. Now, I like to look at that year on year with my clients. How did you go last year? How did you go the year before, the year before that? Because I like to look at the trends. Is it trending up? You know, is the sales trending up? Is the profitability trending up? Are the expenses creeping up a little bit too much? And the best way to do this is to look at the percentages. Now, they're really important because I'm pretty good with the numbers. But if someone just put in front of me a P&L, it was all numbers and no percentages, it would take me a while to sit down and actually analyze it. Because the percentages are the most important thing because that shows you the relativities. So for example, let's say we've got a business that two years ago they did nearly$950,000 in sales and their direct expenses were 72% of sales. So that was$658,000. So that was 72% of their sales. And as a percentage, what was left over was$260,000 and their margin was 28%. Now the overheads were nearly$350,000 for that year. And that represented 37% of their sales figure. So what ended up as a result was$87,000 loss. Now, what people forget with this is that what's left after you've paid for your services and your products that you sell is the margin. If your overheads are a higher percentage than your margin, you're going to lose money. So in this case, the margin was 28%, but the overheads were 37%. And the difference between those two is 9%, and that's exactly what the loss was. It was minus 9%, nearly$90,000. So when you see the percentages, that tells you when things are trending well or when they're not tracking well. So the following year, that company did$2.2 million in sales. Their margin increased significantly. from the previous year up to 38%. Now that's a huge increase. So that means that they're selling their products for less. So the cost of their goods is less and their margin is a bigger percentage. So that's a really great trend. So the previous year, the margin was 28% and the following year, the margin was 38%. But equally good news was their overheads had fallen from 37% to only 31%. So what we've got is a difference in the margins 38%, the overheads are 31%, and what is left is 7% in net profit. So it's gone from minus 9% the previous year to 7% the following year. So the percentages are really, really important. Are your costs trending up or are they trending down? Are your overheads creeping up or are you getting them under control? Because those two numbers alone, your margin and your overheads, are going to determine whether you have a profit or a loss. So those percentages are really important. And it's a lot easier to see the trends when you've got your percentages in your P&L rather than just a whole stack of numbers. Okay, I'm going to give you an example here. Company... Three years ago, it was doing nearly 750,000 in sales. Two years ago, 810,000. Last year, just over a million. And the current year target's 1.5. So if they were the only figures I showed you, you'd say, wow, you know, their sales are really flying. They're doing really well. You know, they've almost doubled in three years. However... Then we have a look at, okay, what was their client acquisition story? Well, three years ago, they had seven active clients. Two years ago, they had eight active clients. Last year, they had 22 active clients. And their target this year is around 40 clients. You go, wow, their sales are flying. No wonder their revenue is climbing. Their client acquisition is really going through the roof. They're doing really well. However, the real story, when we get down to it, really look at their numbers story. First thing is, again, you go back to the percentages. So they grew 8% from one year to the next. They went 750 to over 800,000 in sales. So that was 8% growth. Not great, but it's growth. So it was good, positive growth. Last year, they did over a million. Now, that represented 29% growth in sales over the previous year. That's a lot. That's a lot to expect from your team. And their current year target's 1.5 million. That's 44% growth on last year. That's an awful lot. And when I share with you that this company's not increasing its sales, team size. So they're expecting all this additional growth and activity and output from their existing team. You wouldn't be surprised when I say their team is just at burnout point. They're at walk away and burnout point. So if we look three years ago, the average fee per project for this consulting firm was$83,000 per project. And it was almost the same two years ago. It was about 80,000. Last year, it had more than halved to just under 35,000 a project. And this company's focused on more, more, more. Just get anything in the door, churn it over, get the next one. Churn through it, get the next one. So when we first look at the sales, we thought, oh, You know, that looks like they're doing really well. Number of clients they've acquired over the last three years. Gee, that looks really good too. No wonder the sales are great. But when you actually look at the activity in the business and what's really going on and the massive percentage of growth that they're trying to achieve with the same number of people, you realize that this is not manageable growth. It's not profitable growth. And this company is going to crash and burn, which is exactly what it did. So you have to have a look at the real story to find out what's going on. Another company, they had just over a thousand customers of different sizes and sales revenue was close to 1.4 million in turnover. Sounds good? Then when we have a look at the real story around their client value and their client numbers, I realised that this client was 16% of their customer base, they had 164 customers. So they had 1,000 customers or more in total, and only 164 of those were generating 68% of the sales revenue. So close to a million dollars in sales. And this company was doing$1.4 million. So that's a huge amount of customers. It was what, six, seven, eight, about 850 that were contributing a really small percent of the revenue. So just over 30% of the revenue. But if they stopped focusing on those really, really small, low value customers, their team would have had so much more time to focus on the bigger, higher value customers and to get more of those. So when you really drill down into what's the value of your clients and your customer base, you can see what sort of activity needs to happen in your business to service them. So you need to start getting really strategic about understanding your number story and what it's telling you about your business and what you need to change. Because more is not always better. And I'm always going on about that. It's more sales for the sake of getting sales is not always a good thing. It needs to be strategic. More clients for the sake of more clients is not always a good thing either. You need to be focusing on the right thing. Just quickly, I'll touch on understanding numbers in your products and services. So in this particular example, it was a product-based company. They did 13.5 million turnover and they had four main products. The first product made up the highest percentage of sales. It was 5.6 million turnover and The next product was 2.1, next product 4.7, the next product 1.1. So you look at that and you go, oh, product four, that's only just turning over a million dollars a year. First product is flying, they're heading for 6 million a year. And then you drill down into it and you can see that product one makes up, it has a margin rather of 60%, which is really high. Products two and three are sitting at 55% margin, which is good. Product four, the margin's only 38%. So it's really low by comparison, which means that product costs so much more to produce than the other products. And it's only 8% of sales, whereas product one, the superstar is 42% of sales. And then one other thing I looked at with this product portfolio was you know, the number of product units that needed to be stored in the warehouse. Now, product four, that only did 8% of total sales, contributed 50% of all the stock units that had to be held in the warehouse, 50%. So 50% of the total cost of running that huge warehouse was because of one product that had a really low margin. And low sales compared to the other products. Whereas we look at the superstar product one that was heading for 6 million turnover for the year, only had 7% of the stock units to be stored in the warehouse. So you drill down into your numbers and I'm not saying you do this straight away because you need to get used to it. You need to familiarise yourself with it. But when you really drill down, it's not just the top line and it's not just the bottom line. You've in between those two that are going to give you the profitable bottom line. So understanding the cost and the contribution.