Understanding ratios is key to unlocking deeper insights into your business’s health and driving smarter decision-making
Imagine you’re a farmer with two apple orchards. One day, you decide to count the apples in each orchard. Orchard A has 1,000 apples, while Orchard B has only 500. At first glance, it seems like Orchard A is the clear winner. But what if I told you that Orchard A has 10,000 trees, while Orchard B has only 500? Suddenly, Orchard B doesn’t look so bad, does it?
This is the power of proportions. In business, as in farming, raw numbers can be deceiving. To truly understand the health of your business, you need to look at proportions.
You are probably looking at absolute numbers every day, e.g. your business has made $10K in revenue this week. There are 250 customers who placed orders today, while it was 200 yesterday and 100 on the same day last week etc.
Proportions, on the other hand, are like the fine print. They might not be as immediately eye-catching as absolute numbers, but they provide a more accurate picture of your business’s health.
Take profit margin, for example. This is a proportion that compares your profit to your revenue. A high profit margin indicates…