The Dr. is In: Moneyball!
I really enjoyed the movie Moneyball. And not just because it starred Brad Pitt. The story is about Billy Beane, the general manager of the Oakland A’s, who was (due to rules I’ll never understand) stuck with the lowest salary constraint in baseball. The way he eventually turned the team around involved hiring a “numbers guy.”
The character, Peter Brand, used Sabermetrics, a concept in which statistics and other metrics are used to analyze baseball. While there is more to building a successful team than statistics, it made for a good story and a great movie.
But the moral of the story is that David can beat Goliath if he uses numbers correctly. You can translate that into your own business—running it by the numbers instead of by your gut.
You may think you’re not a numbers person. But if I asked you to determine the optimal screen size in a new theater, you would quickly calculate the viewing distance. You would need to determine the viewing angle, sight lines and projector capacity—all using numbers to create the optimal home theater design.
You didn’t start out working in this industry automatically understanding how the numbers fit together when reading plans, creating designs or building the right solutions for your client. You learned over time how to manipulate the numbers to compile the technological components of your business.
Understanding financial statements requires some learning as well. Set a goal to sit down with your financial statements on a monthly basis to become familiar with the numbers. Create metrics that you can use to help improve profitability. The following is a summary of some of the numbers that you should be tracking.
Gross Profit by Job
Add up all the costs associated with a specific project. Be sure to include all the equipment, materials and labor costs. When reviewing the labor costs, make sure to include not only the gross wages attributed to the job, but the burdens that go with those gross wages. Subtract the total costs from the sales price to arrive at the gross profit. The gross profit for each job is used to cover your overhead. Until you cover your overhead with the gross profit from all the jobs you do, there will be nothing left over for profit.