“Am I getting what I’m paying for?” This is a question every business leader should ask themselves about each their budget lines items at least annually. Some areas are easy enough to gauge; utilities and rent come to mind. Others are much harder; think about labor, marketing, and your technology budget.
Every budget line should have at least one metric that ties back to overall business results. Doing this will result in a dashboard for your budget that will help you find the maximum leverage areas in your business. Some examples*:
- Revenue per employee (overall output of your business)
- % of Sales expense to overall revenue growth (effectiveness of your sales efforts)
- Utilities/rent per employee (do you have the right overhead)
- % of Technology expense to Revenue (overall productivity leverage available)
Technology budget expense and investment are often not properly reviewed in the context of overall business impact. Often the AMOUNT of investment is correct based on the size of the business, but the RETURN is not there. Often the provider is not fulfilling the services that were agreed upon. This slips through the cracks when ‘everything else’ seems to be working and there isn’t a specific issue. The problem is that the productivity of your business slowly creeps down.
The first thing we review when discussing a business partnership are the basic metrics above. This often leads to the conclusion that technology spend is correct, but the outcomes are not being delivered. If you are spending the right amount, but the results are not there it is time to evaluate your technology alignment with the business. At Stringfellow we have developed benchmarks that allow us to quickly determine what the optimal technology investment should be based on where your “business metrics” are today.
*Often these metrics are industry specific for benchmarking purposes between other companies. Also we see that substituting Gross Margin/Profit for Revenue can normalize the metrics across different industries.