3 Numbers All Entrepreneurs Should Know

To make good decisions, you need good data. That’s a given, right? But in a start-up, what data should you be looking at?

In the early days of a startup, sometimes there isn’t much to measure. A comparison of this year’s sales compared to last year’s isn’t all that helpful if you’ve only been around for eight months. But that doesn’t mean you shouldn’t start collecting data right away.

So where can you find relevant information?  As an investor, I would offer three metrics that will give you some insight into your current operations and help you do some short-term forecasting. For most small companies, this will be a good step toward focusing attention on the information that will lead to informed decisions.

1. Pipeline coverage

The sales pipeline is a listing of all your sales prospects. Typically, you’d include the projected sales amount and estimate the probability of success for each account. You’d update the information regularly.

Sales pipeline coverage is a fraction. The total amount in your pipeline is the numerator, and the sales goal is the denominator. So sales pipeline coverage measures everything in the sales pipeline against the sales goal. As the business matures, you’ll get better at estimating closure rates, and you’ll be able to tie closure rates to milestones. If you’ve only had one meeting with a particular customer, you might assign that deal a 20% chance of closing. Once the customer has agreed to pricing, you might bump that up to 50%.

In practice, you want your pipeline coverage to be over 2.5x. That should virtually assure you make your target, as long as you’ve got a reasonably competent sales effort and have done a good job qualifying your customers.

2. Sales per employee

This metric is simple enough, and it’s good for businesses of all sizes. Just take the gross sales number and divide it by the number of employees. Since small businesses typically scale too fast ahead of their prospects – the optimism of entrepreneurs is both their blessing and their curse – sales per employee is a critical measure within growing companies. Warning: Once you start focusing on this number, you’ll quickly see the intrinsic appeal of hiring salespeople over other personnel.

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Source: Inc