KPI: Overhead per Customer

22 07 2009

If you are trying to measure management improvement, how about looking at Overhead per Customer (or per transaction).  This should be a decent indicator in terms of management and overhead scalability.  If we are doing a better job of managing the business we should see some increased returns in the management function.

  • If the trend is increasing, we should be discussing the scalability of the organization.
  • If the trend is decline, is it for the right reasons?

While you are at it, you might also include cost of sales per transaction.  This one is perhaps a little more debateable in that we don’t want to artificially manage this number.  Reducing the number of sales reps, may drive down the number.  Reducing compensation plans may chase away our better sales reps.

KPI Library: Profit per Employee

14 06 2009

If you are looking for a productivity or effectiveness KPI, a sure place to start is revenue per employee (unless you are in the public sector).

  • It is a straight forward calaculation
  • It is easy for every employee to get their heads around
  • It is a measure of scalability
  • It is a crtical measure for long term success
  • It triggers great conversations about the health and direction of the company

It has one primary weakness in that it is a lagging indicator.

Similar metrics to this are Revenue per Employee, Expense per Employee, Expense per Sale, Profit per Transaction, Profit per Customer.

Customer Lifecycle Value

1 05 2009

Depending upon on how well your know your business, a great discussion to have somewhat regularily is whether or not the customer lifecycle value is increasing or decreasing.  To achieve this we need to know a few things…

  • How much has the customer purchased from us?
  • How long are they likely to stay with us?
  • What does it cost us to serve them?

None of these are necessarily easy questions to answer, but that does not mean we should not talk about these items. Worst case, you should at least be looking at the average revenue and cost per client and see how those are changing. They are probably pretty good indicators of lifecycle value.  If we look at the trends of our revenues, costs (COGS & SGA), and profits per customer this should certainly indicate if we are doing better or worse.

While most of us do this to some degree, we probably also throw in a great deal many more variables and business rules and end up discussing various concepts. What about once a month or once a quarter getting all the department heads together and discuss progress on only these items.

Scalability as a KPI

7 03 2009

One item that companies should do a better job with is understand departmental scalability.  Are the company grows, do each of the departments grow with the same scale?  Does finance not scale because of compliance and risk, or because of broken processes?  How do we know if we can’t track Revenue / Departmental Headcount over time?

And if we do start to do a better job tracking metrics like this, doesn’t this give us greater insight as to where the organization gets the most bang for the buck?  As well as give us a defensible rational to defend against empire building for personal reasons?