The 5 Numbers Every Creative Business Should Track

Welcome to the Creative Mind Smart Money Podcast where we turn financial confusion into creative confidence. I'm Samantha Eck, the keeper and fractional CFO for creative entrepreneurs. Each week I'm sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you'll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. When building a successful creative business starts with strong financial foundations, your next chapter starts now. Your listening to the Creative Mind Smart Money Podcast and today's episode, we are diving back into more CFO related things and we're talking all about KPIs. KPIs are a very exciting topic because there's something that a lot of people tend to ignore but could be really good indicators of the health of your business and the success of your business. So everyone talks about KPIs. You see them all over the place. I'm sure you have. You've seen them on social media somewhere but no one explains what to actually do with them once they're tracked or like what you should even track. So today we're going to talk about keep performance indicators, how to choose the right ones, how to make them work for you and how to create metrics that are actually unique to your creative business as a creative source writer. We don't need to become some sort of a spreadsheet queen or track our entire life to be good at business. We really just need those few intentional numbers that are going to give us that highlight and that insight into the health of our business overall. So let's really get into these and talk about them. So what the heck even is a KPI? You're probably like, okay Samantha, that's great. You're throwing big financial words at me but please explain to me in plain English. What is a KPI? The key performance indicator. First of all, KPI is a key performance indicator. So never that tells you how well something went when your business is performing. And it's not just any number. KPI is tied to a specific goal. It's tracked regularly, and it's actionable. So it's not just data, it's a decision-making shortcut. One of the first positions that I ever had was working for my dad at a logistics company. And one of the things we did was KPI was tracking how many cases or how many items were picked per hour, I believe. And then we would compare that and make sure to see what the average should be for picking orders when we were doing it in logistics. It was a very interesting process, but that is how I learned about KPI's and how I learned about the power of them. 'Cause it would show us people who were underperforming based on a KPI, how do we get them up? What are they doing differently than people who were performing above average or at least at average? So that's why we really want to kind of dig into KPI's. So why do creative businesses need KPI's? First of all, they're going to help you measure your effort versus results based on that example I gave you, which is kind of like helping you have that return on investment and really understanding how things are working. They're going to help you to prevent overworking by showing you what's actually moving the needle. They replace just plain numbers or something like that with visibility. So you don't have to wonder if your business is actually working. You're going to know and you're going to understand if it actually is. And of course, it allows you for empowered delegation. If you're hiring a VAR marketer, how will you know if they're doing a good job? So maybe you're measuring their KPI's again, something like that. And this is more of like someone who's internal and less of like a subcontractor. Because of course, if you're having someone who's a subcontractor, they're going to have their own KPI's that they're holding to their own standards. But of course, we want to measure and understand how things are going in our business. And that's where we use KPI's. So I want to talk about the core KPI's that every business should know. So core keeper for this indicator is that you should be looking at at least monthly, if not quarterly, but I would really suggest that you look at these monthly. So let's keep them accessible and tied to some actual decisions that you've been making. So the first one is your net profit margin. Now again, you're probably like something. You're throwing big words at me what the heck is a net profit margin? So the net profit margin is the percent of income that becomes actual profit. So when we look at this, that our cost of goods are direct costs, minus our expenses, the last number is actually that percentage. And you want the percentage, you don't just want the number. So if you have 10,000 and you made 60,000, or sorry, if you have 10,000, you made 6,000 at the end of the month, you made 60,000 while. But if you have 6,000 at the end of the month, that's a 60% net profit margin, right? So it tells you if you're pricing right and if you're managing expenses, you might just think, well, I could just look at the 6,000 and know that. But for some reason, our brains look at percentages differently. And the reason I know this is because when I'm working with a client and we're working through their books and we look at their expenses, I put a percentage next to every expense. And when you think, okay, I'm spending $20 a month on coffee and maybe you're only making $300 and that $20 a month of coffee is like 15 to 20% of your profit. That's when things start to click in your head and you're like crap. Like do I want to be spending 20% of my income on coffee? And again, this is not to shame you or judge you or say, oh my gosh, like don't spend 20. If you want to spend 20% on coffee, grow, get your coffee. Like don't ever come at me and say, oh my gosh, Samantha, how could you judge me for that? Your business is your business. If that's what brings you joy, if that's what lights you up, if that's what gets you going, spend the money on the coffee. The point of that is to really give you that full picture, like I said, and give you that knowledge. So when we're looking at these percentages, again, it's not for judgment purposes. It's to give us that knowledge to see, okay, is that really where we want to be? Or do we want to be somewhere completely different? Next we want to look at owners pay as a percentage of revenue. So we're looking at, if we're paying ourselves 5,000, and we make 10,000, we're paying ourselves 50%. We want to make sure that it's not a luxury, like we're not saying, okay, we're just going to pay ourselves with leftover leftover. It's a metric, which is why when I'm working with all of my clients, I ask them how much they want to pay themselves every month. Cause we want to make sure that we're getting paid. And then if we can take anything as a potential bonus, some sort of bonus or something like that. Another good one is your average client value. This tells you how much every client is really worth, not just what they pay upfront. So when we talked about the profitability analysis last month, this is something that can really come in handy. Because now you're going to already know what your client value is based on what they're paying. And you know that data. So now you're going to start to see how all of these kind of like integrate really well. And how important having these multiple reports are. And you need more of this information to really get that full picture. And then of course we have the offer profitability. So again, bringing in that profitability piece, what offers are actually making you money, which ones look good, but during your time. And if we're doing that profitability analysis, we can just pull it in and make it a KPI, which is something really exciting. And then obviously you're operating expense percentage. Are you running lean or leaking cash into tools and subscriptions? So that's where we can really get specific as well with KPI's and tracking the percentage of specific categories. Maybe you spend a lot of money on marketing and you want to make sure you don't reach a specific percentage every month. We can track that monthly and make sure that we're actually getting that specific percentage that we want to see. You know, maybe you want to track software and subscriptions. You want to make sure that your software and subscriptions are getting over a certain percentage. A lot of this seems kind of like overdone and sees like, OK, we've already covered a lot of this. But it's about giving you clarity, right? Because if I just threw a report at you and said, hey, like you made 20% last month, like you're not perfect, Merge, or was 20% last month, it's not going to stick, right? When we do KPI's, we put them bold in their own section. In a metrics formula, so that you're like every month, you know exactly where to look. Maybe you don't even look at the rest of the report. Maybe you just want to look at your KPI. You can drop right down to your KPI's and see that number. Maybe you don't want to have time to watch the whole video. Maybe whatever is going on in your business. With my clients, I want to give them that availability to just look at something and be like, OK, I know what's going on. I'm going to move on. So now that we've kind of discussed what, generally, everybody should be looking at his KPIs. I want to really get into some client creative industry specific KPIs based on a lot of people that I've worked with and like people that I know. So let's kind of talk about that on a deeper level. I'm really get into it. So first of all, I have a couple of broad categories that I want to talk about. So like designers, brands, strategists, copyrighters, social media managers, whatever it is, you want to look at things like time to delivery. So this is your average hours per project phase. Because it helps you manage your team or the scope of work. Revision per project, maybe it could be a good one, identifying clients who need tighter boundaries. Client ROI reports. So looking and seeing if the new branding product that you did or the new design project that you did brought more conversions because that can be used in advertising too. Like that's a great KPI to keep track of and advertising. Your client turned around time. How long did it take to complete the onboarding and intake process? How long did it take to complete the project? Keeping track of all that can be really, really good. For photographers or videographers, maybe you're shoot to edit ratio. How much time you're spending after the shoot? Not just on the shoot. Maybe your average upsell poor client do clients by add-ons. Do they buy additional albums? Do they buy galleries? Like what are they adding on? That could be a really good KPI for you as well. Image delivery turnaround. Seeing how fast it takes you to turn around that. And then seeing if you're overbooked or if you're underpricing. Like if you're turning things around super fast, but you know, you're not charging for that. Like, how do you manage that? Of course, creating. your sales class educators looking at your conversion rate per lead magnet. So how much of your lead magnets are converting? Looking at your email open rates on your sales sequences, having that into your financials. And I know a lot of this you might be looking like, why would I want that on my financials? But it all kind of ties together if you understand what I mean. Like everything is working together in tandem and that's what you really want to see. So your completion rate for your signature offer. So like, you know, how many people are actually going through your course and then your refund rate per offer? Like how many people are refunding if they are not going to your offer up? And then of course we can have like your influencers, content creators, social media managers, time per sponsor, deliverable, profit per collaboration, reach versus engagement ratio. Like, you know, your client rebooked great. How many brands are coming back? These are all very important KPIs. The different, you know, creative service writers can keep track of. There's a million to one that we can talk about. And I can't obviously list every creative industry, but there's just some highlights on some things like that you can be looking at that are considered KPIs and that could be helping you. Okay. How do we choose our KPIs? So first of all, start with goals, which is something is a fractional CFOIO start with my clients. We look at their goals. Like, what are their goals in business? What do they want to do with their business? Are you trying to grow? Are you trying to protect your profit margin? Are you trying to improve your profit margin? Are you trying to improve? Like, what are your intentions with your business? Like, what are the specific goals that you have? Do you have a goal of making $10,000 a month and you're at $5,000 a month? You know, how do we get there? So we're going to pick three to five KPIs. Don't do a ton again. I want you to be clear on that. You want to pick three to five because any more is just going to cause you overwhelm. And you don't want to track so many that you're like, okay, I'm over here. I'm over here. You want to pick three to five specific KPIs that you want to be looking at on a monthly basis and then make them visible. Add to your monthly CEO day, put them on a dashboard. Track them in a Google sheet. We're working with me. Like I said, I put them on a dashboard for you. I make it very clear because it is very clear to yourself. And then I want you to do a mini exercise on this monthly basis. Like just a mini exercise to help you choose these KPIs. Ask yourself this. What do I always wish I knew earlier? So what is something that you wish that you knew before you started? What numbers do I check when I'm spiraling? So when you feel like your business is falling apart, what do you usually look at? And then what would tell me if I'm growing even if revenues flat? So even if your revenue is consistent month over a month, what behind the scenes is going to tell you that you're growing? And that can help you choose maybe what's important for you if you're maybe just a little bit confused about what to really look at. So I want to just also mention something that a lot of people look at as KPIs but are a danger. So this is the danger of vanity metrics. Okay. Likes, for example, on your social media posts, likes don't equal sales. If you have, you want to track something that actually matters, track the conversion rate in your DM. So maybe you're consistently talking to someone in your DMs and they convert into a client. That is more important than tracking the likes on your social media posts or the followers on your social media posts. That is not actually going to show you growth, right? That's going to show you growth on your social media. Sure. And if that's a goal of yours, fantastic. And if your goal is to make more money, having likes on a post isn't going to really show you that revenue does not equal profit. So that is also a vanity metric looking at just your top line revenue is completely a vanity metric because if you're just like, yeah, okay, I made $100,000 last year. Great. But what were your expenses and what was your profit? That's what we want to understand. So don't just look at the revenue. And of course, we don't want to say that, you know, we're just busy, which it does not equal successful. We want to be looking at these KPIs to understand if the busyness is actually profitable. If it's actually meaningful, we don't just want like a pretty dashboard filled with numbers that are like, oh, yeah, I got five likes on my post last week. That's fantastic. I'm so happy you did. And I'm so like, I want to celebrate that with you. But I also want you to celebrate the fact that, you know, your numbers actually make sense and not just that you got more likes on your social media posts. Okay. So if you found this episode helpful, as always, please leave a like, a comment, share this episode on social media and, you know, for other creators to find this podcast so that we can all grow and learn together and really dig into this stuff. If you want to hear about different topics, maybe you have a specific topic you really, really want to hear about, you know, like, Smaddy, you haven't touched on this yet. Please can you talk about this topic? Then please send me a form. I have a form in the description box below. Please fill out that form and send it my way. And I'll definitely start talking about that topic. As always, I wish you the best week ever. I'll see you next week. Farewell fellow travelers.