June is a perfect time to take a look at company numbers year-to-date. There’s enough to time elapsed to get an accurate look at progress toward the business goals set for the year. And based on the outcome, there’s still time to make adjustments. A mid-year financial check-up allows C-level executives to take what’s working and expand on the product, service, or tactic for greater financial success. Alternatively, business leaders can take what’s not working, figure out why and what needs to be done to correct the course or cut losses.
- Revenue per Employee
This number measures a company’s productivity with regard to its employees and is relevant and meaningful for all industries. Simply divide the total revenue year-to-date by the number of employees. For part-time employees, compute a full-time equivalent total and use that as the denominator. Compare this number to prior years to see if the company is getting more or less productive. Also compare this number to businesses in the industry (if data is available) to see how the company compares to peer companies.
Other revenue calculations may also be helpful, such as revenue by geography, revenue by product line, or average sale: revenue by customer.
- Customer Acquisition Cost (CAC)
How much does it cost to acquire a new customer? The customer acquisition cost is made up of marketing and selling costs, including marketing and selling labor. Use the number of new customers acquired during the previous year to calculate this number.
Compare this number to prior years as well as industry peers. Two ways to lower the CAC is by boosting marketing skills and/or implementing lower cost or more effective marketing channels.
- Overhead Costs
Overhead costs are expenses that are not directly attributable to producing or selling products and services. They include items such as rent, telephone, insurance, legal expenses, and executive salaries. Although it’s not standard practice to break out overhead expenses from other expenses on an income statement, it’s valuable to know the numbers for performance purposes.
Compare overhead costs to prior years and industry averages. Be proactive about managing overhead cost by re-negotiating with vendors on a regular basis and trimming where it makes sense.
- Profit Margins
Profit margin helps determine which business division is most profitable. If a company sells more than one product or service, compute a gross or net margin by product or service. It may also be helpful to compute margins by geography, sales rep, employee, customer, or any other meaningful segment.
If everything has been coded correctly and overhead has been allocated appropriately, a good accounting system will be able to generate an income statement by division. Seeing which service or product is most profitable helps with decisions such as marketing efforts, pricing, product or service offerings, whether to keep or fire employees, customer opportunities, or other important decisions.
- Breakeven Point
Breakeven is how many units a company needs to sell or revenue needed in order to show no profit and loss. The formula for units is Fixed Costs / (Sales Price per Unit – Variable Costs per Unit) which results in the number of units necessary to cover overhead costs.
The breakeven point helps target and plan the amount of volume necessary to start generating profits and plenty of cash flow.
These five numbers help interpret business performance on a deeper level for decision making that leads to greater financial success. If Lucrum Consulting can help with any of them, please give us a call any time. Our fractional CFOs routinely work with business leaders to develop practical assessments and robust action plans to improve cash flow, profits, and overall financial sustainability.