Encouraging founders to reverse engineer their desired profit goal into activity.
Imagine setting off on a journey without knowing your destination.
You'd drive around hoping to eventually arrive somewhere worthwhile, but without a clear route, every junction becomes a guess.
That's exactly how many business owners approach the development of their business.
They work incredibly hard, generate sales, keep customers happy and watch the accounts at the end of the month. Yet they're never completely sure whether they're actually moving towards the business they really want.
The reason is simple.
They're measuring where they've been instead of planning where they're need to go.
Looking in the Rear-View Mirror
Your annual accounts are important.
Your management accounts are important.
Your bookkeeping is important.
They tell you how your business has performed.
But they're historical documents. They explain yesterday.
As a business owner, your job is to influence tomorrow.
That means understanding the operational numbers that determine whether you'll achieve your goals long before your accountant prepares the year-end accounts.
Start With the End in Mind
One of the first questions I ask clients is remarkably simple.
"What profit do you actually want your business to generate?"
Not turnover.
Not market share.
Not the number of employees.
Profit.
Because profit is what allows you to invest, reward yourself, employ great people and enjoy the lifestyle you started your business to achieve.
Without a clear profit target, everything else becomes guesswork.
Then Work Backwards
Once you've decided the profit you want, the next step is to calculate what your business needs to produce to make that happen.
Begin with your annual fixed costs.
These are the expenses that continue whether you make one sale or one thousand. Things like salaries, rent, insurance, software subscriptions, finance costs and professional fees.
Add those costs to your desired profit and you arrive at a critical figure.
The amount of gross profit your business must generate to pay those fixed costs and your desired ROI.
Now you're no longer hoping to make enough money.
You know exactly what you're aiming for.
Next Turn Strategy Into Numbers
From there, the calculation becomes surprisingly straightforward.
Knowing your average gross profit margin tells you how much revenue is required.
Knowing your average customer value tells you how many sales you'll need.
Knowing your sales conversion rate tells you how many genuine opportunities your marketing has to produce.
Suddenly the business starts to make sense.
Marketing isn't about "getting more enquiries."
It's about generating enough qualified opportunities.
Sales isn't about "trying harder."
It's about converting the opportunities your business needs.
Every part of the business becomes connected.
It's A Different Conversation
Notice how different these conversations become.
Instead of saying:
"We need to increase turnover this year."
You're saying:
"We need another 60 customers, which means generating around 250 qualified enquiries over the next twelve months."
That's a plan.
Your team understands it.
Your marketing can support it.
Your sales process can be measured against it.
And you can review progress every month instead of waiting until the year-end accounts arrive.
The Dashboard Every Business Needs
There are a handful of numbers every business owner should know without hesitation:
Your desired annual profit.
Your annual fixed costs.
Your gross profit margin.
The revenue required to achieve your goals.
Your average order value.
The number of sales required.
Your conversion rate.
The number of qualified leads needed.
Your cost of aquisition per new lead and / or per new customer
These figures become your business dashboard.
When one changes, you immediately understand the impact on everything else.
Stop Hoping. Start Planning.
Successful businesses rarely grow because they're lucky.
They grow because their owners make informed decisions based on numbers that matter.
When you reverse engineer your business, growth becomes predictable rather than accidental.
Instead of asking, "How much revenue should we aim for?"
You begin asking much better questions.
"How much profit do we want?"
"How many customers do we need?"
"How many opportunities must we create?"
Those questions lead to clarity.
Clarity leads to better decisions.
And better decisions are what build stronger, more profitable businesses.
So, before you set your next revenue target, pause for a moment.
Work backwards.
Because once you know the numbers that really drive your business, you'll stop chasing growth and start creating it with purpose.
Mike Foster
Entrepreneurs Mentor
