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The Cash Calculator – A Financial Model for Your Business

The Cash Calculator - A Financial Model for Your Business

Written by Marc Tannenbaum

Many of the contractors we work with are very good technicians. They’re extremely talented at doing the work of the business. Their businesses have grown well, but further growth is now limited by the very thing that has led to their success to date.

The owner is typically the best in the business at marketing, selling, and/or installing the services of the business, but is unable to show or teach others how to get the same quality of result that he or she gets when doing this work. “Nobody can do it as well as I can,” is a complaint we hear from owners all too often. They are stuck because of his/her success – and the business can’t grow because the owner can’t duplicate the results that they get when they do it themselves.

To grow the business, the owner must grow. He or she must learn how to attract, hire, and keep good people. They need to create marketing, sales, and installation systems and processes to teach team members how to work effectively and profitably. And they need to learn how to manage, motivate, and lead a team of people that do the work of the business. As Michael Gerber, author of “The E-Myth” says, “he needs to learn how to work on the business instead of in it”.

Owners also need models that allow them to see how their businesses operate and make money. These models allow the owner to see how profit is generated, and adjust levers in the model to make more!

The first model is a financial model we call the cash calculator. It allows the owner to know how profitable your business will be, and what to change to produce more results.

Every business wants more customers, revenue, and profit. The problem is that you cannot directly create these things. Winning customers, growing revenue, and increasing profits are the results of other variables in your business. These are the parts of the cash calculator:

LEADS: The number of customers calling you for an estimate each year.

CLOSING RATIO: The percentage of them you sell.

AVERAGE SALE: How many dollars on average each sale is.

# SALES PER CUSTOMER: This measures repeat business. We can sell more to the same client or do annual service on our installations. If 10% of your sales come from this, then your “# sales per customer” is 1.1.

TOTAL SALES: Annual sales for the year. (A result of the first four variables)

NET MARGIN: This measures what percentage of your businesses total income you did NOT spend, and have leftover as profit. It is a very important number!

PROFIT: This is how much you make as pay and profit left over. If you took a salary then this is profit. If you did not take a salary, then this is your pay and profit together (The result of the five variables).

Here’s what the formula looks like:

Leads x Closing Ratio x Average Sale x # Sales per Customer = Total Sales x % Net Margin = Profit

If you want more customers, you can’t go out the front door of your business and tackle one! You get more customers by creating more leads to run, and closing a higher percentage of your run leads into sales.

Once you get a customer, the only way to increase revenue is to sell them a higher quantity or more often.

Once you have revenue, you must spend less of it running your business to increase your profits.

Here’s an example of a small business to illustrate how the cash calculator works:

Leads (1000) x Closing Ratio (20%) x Average Sale (800) x # Sales per Customer (1) = Total Sales ($160,000) x % Net Margin (8%) = Profit ($12,800)

The power in this model is that it identifies the levers you can adjust to increase the profits in your business. Leads (Run) and the percentage of them that close (Closing Ratio) predict how many customers you will have. The average value of each of your sales (Average $/Sale) and the number of times you sell a customer predicts revenue. The percentage of revenue you don’t spend running the business predicts profits.

Leads (1000) x Closing Ratio (20%) x Average Sale (800) x # Sales per Customer (1) = Total Sales ($160,000) x % Net Margin (8%) = Profit ($12,800)


Leads (1100) x Closing Ratio (22%) x Average Sale (880) x # Sales per Customer (1.1) = Total Sales ($234,256) x % Net Margin (8.8%) = Profit ($20,615)


Leads (1200) x Closing Ratio (24%) x Average Sale (968) x # Sales per Customer (1.2) = Total Sales ($334,540) x % Net Margin (10%) = Profit ($33,454)


Leads (1500) x Closing Ratio (30%) x Average Sale (1200) x # Sales per Customer (1.5) = Total Sales ($810,000) x % Net Margin (12%) = Profit ($97,200)


Leads (2000) x Closing Ratio (40%) x Average Sale (1600) x # Sales per Customer (2) = Total Sales ($2,560,000) x % Net Margin (16%) = Profit ($409,600)

Look at the changes from the first example to the second. The inputs were increased by only 10%, but they make a 61% difference in the profit!

The first step toward improvement is awareness. With the cash calculator, you are now aware of a powerful formula that can dramatically impact your profits.

What do you need to do to derive a 10% improvement in these numbers in your business?

Marc Tannenbaum is President of Attic Systems, a Contractor Nation company.

Service Roundtable is dedicated to growing your bottom line and helping your business maximize its full potential. These group of contractors work together to assist you with marketing, sales, business, and so much more. Twice a month, seminars around the United States and Canada are held to network and further assist your business. Visit Service Roundtable.com to see if there are Success Days in your area!

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