12 February 2016
How valuable is your business?
Six ‘Power Ratios’ you can start tracking now in your business to improve its value to a buyer.
Cricket is often termed a game of statistics and is often measured more in averages/percentages and ratios. Similarly baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base – as a percentage of the number of times they get the chance to try. Business buyers like tracking ratios, and the more of these ratios you can provide the more comfortable they will be when considering buying your business. A ratio expresses the relationship between two numbers, which gives them their power. If you’re planning to sell your business one day, here’s a list of what we think are the six ratios to start tracking in your business now:
- Employees per square foot
The number of square feet of office space you rent divided by the number of employees you have. Commercial real estate agents have a general rule of 175–250 square feet of usable office space for each employee.
- Ratio of promoters and detractors
The Net Promoter Score® methodology is based on a single question that predicts both repurchase and referral. When customers are asked “On a scale of 0 to 10, how likely are you to recommend ‘your company’ to someone?” The percentage of respondents who score you 9 or 10 are then classed as “promoters.” Then you can work out the ratio of customers who score you 0-6 by figuring out the percentage of people surveyed who gave you a score of 0 to 6. The Net Promoter Score (NPS) is then worked out by subtracting your percentage of detractors from your percentage of promoters. In the USA the average company has a score of between 10 and 15%. More importantly these companies grow faster than average scoring companies.
- Sales per square foot
Sales per square foot measurements give you data on of how efficiently the space is converted into sales. Different industries have different benchmarks so annual sales per square foot for a respectable retailer in the USA might be $300. The more sales per square foot of space the more profit.
- Revenue per employee
As one of the highest costs payroll is a high cost item for most businesses and has a direct link to the bottom line. Google in the USA delivered a revenue per employee one million dollars plus in 2015, whereas more mainstream people-dependent organizations were finding it hard to break the $100,000 per employee barrier.
- Customers per account manager
How many customers do your staff manage? Getting the balance right is difficult. Banks might be able to handle 400+ clients and probably in reality do not know each of their customers. Conversely high-end wealth managers may have less than 50 clients but know them well and meet regularly. It’s not an exact science so working out what the right ratio is dependent on your industry. One technique is to very slowly increase your ratio of clients to account managers up to the point early signs of client satisfaction and or sales drop off…this is probably the point you have gone too far.
- Prospects per visitor
Do you know the proportion website visitors who “opt-in” and allow you permission to e-mail them? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advises companies like Google, Apple and Sony on how to convert their website traffic into customers. Dr. Blanks and Mr. Jesson have stated that there is no such thing as a typical opt-in rate, because it depends directly on the source of the traffic. Rather than benchmarking yourself against a competitor they say its best you benchmark yourself against your current site’s opt-in rate.
So business buyers will have a keen interest for these 6 lines of data and the more positive data you can give them the more attractive your business will be in their eyes.
The Profit Key use The Net Promoter Score within our business and with our clients to make sure these ratios are measured and improved upon.
Call us today to find out more on 01530 416555
Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
Built to Sell Inc. 577 Kingston Road East, Toronto, ON M4E 1R3
The Value Builder System and Certified Value Builder are Trademarks of Built to Sell Inc.