Bad judgment may be the most profitable thing you ever do in your business, as long as you learn from the experience. When you make bad calls, you nearly always pay. In some cases, you pay very dearly. How do you know how much your bad judgment cost? How do you know how much your subsequent good judgment produces?
Anthony Robbins said, "Success comes from good judgment. Good judgment comes from experience. Experience comes from bad judgment" Bad judgment may be the most profitable thing you ever do in your business, as long as you learn from the experience. When you make bad calls, you nearly always pay. In some cases, you pay very dearly. How do you know how much your bad judgment cost? How do you know how much your subsequent good judgment produces? You need to test and measure all that you do. Jack Welch said, "If you don't measure it, it ain't business". The process of testing and measuring should cover all aspects of your business from the obvious, financial performance to the often overlooked, response rates of adverts. Let’s start with your financial measures. In business, profit and loss statements are used to a greater or lesser degree. My experience is that most people use a P&L for taxation purposes, or more exactly, their accountant uses the P&L for taxation purposes. Your P&L measures business performance, your bank balance does not. Therefore the P&L should be structured to show what part of the business is producing the returns, as well as what part is not. It is important that the business owner not only reads this document, but also understands it. As a business performance tool, the P&L must show what the business owner needs to know, as well as showing what the accountant needs. Now we move on to another area of your business – determining the performance of marketing activities. You need to know if your marketing activities are working. For this to be possible, you must measure each advert or marketing piece and understand how much business it has generated. To measure the success of any advertising, it is essential that you understand your "conversion rates”. In a direct mail out, the conversion rate is the ratio between how many letters were sent, to how many people bought in response to that letter. In advertising, the conversion rate may be the cost of the ad to how much revenue/profit the ad produced or how many phone calls were generated and how many of these callers made a purchase. In order to calculate the conversion rate you need to be able to track your ads. This may be a simple number on the offer letter. To get the conversion rate you count how many letters out to how many letters came back with the orders. Or it may involve the use of a special phone number where the number of calls made to the number can be tallied. In the web arena these conversion rates include how many people visited your site, to how many bought; it may be how many emails were sent to how many orders were placed. When using Pay Per Click advertising it will include the ratio between the number of people who see your ad to the number of people who respond - the Click Through Ratio, and then the conversion ratio between those who visited and those who bought. The critical aspect of your business is understanding and measuring all that you do, in order to find what works and learn from what does not. You can then turn bad judgment into success, by doing "more of what works and less of what doesn't".
Ritchie Hale is founder and owner of ELAH Group Pty Ltd. As a consultant he has shown large, global corporations how to gain leverage in the areas of Marketing and IT. As a personal coach he has turned small business owners and individuals in to goal getters. Ritchie is dedicated to helping small business owners grow their business with "more of what works". Visit http://www.elahgroup.com