Making assumptions

8th March 2012

When was the last time you checked your break-even point? In fact have you ever checked it, and if not do you know how to? One of the first questions I ask new clients is do they know what their break-even point is, and more often than not they will tell me that they do, and will then give me an approximate figure of what they think it is. The trouble is, that invariably they are not correct (often by large amounts), either because they don’t fully understand the concept of break-even, or because they have had changes in circumstances which they have not taken into account.

Of course this is a recipe for disaster. Assuming you know your break-even point (but being wrong about it), and therefore having misleading targets, could potentially cause the business to go bust. Therefore when things change, such as taking on new staff, or costs of materials have risen, or rent or rates have changed, then the break-even will also change and it is essential that you recheck to ensure you alter monthly targets accordingly.

On another note I made an assumption last year about my conversion rate, and found that I was out by 10%. Again assuming numbers wrongly could have thrown me badly off target, and had we not checked we wouldn’t have been able to react and change things to improve our numbers. In my case we decided that we needed to increase the number of meetings I was having, so we took on a new part-time telemarketer, which had an immediate effect. However, we didn’t just leave it at that. We also reviewed our sales process as a whole, and started changing things to improve my conversion rate as well.

So making assumptions about anything is always risky, but in particular when it comes to your numbers it is even more so.

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