Question

Identify 10-15 financial and nonfinancial metrics used to assess the viability of opening a satellite clinic. From this list, select three financial and three nonfinancial metrics that are the most important and explain their significance (net revenue, demographics, customer relations). Where will you find, and how will you gather, the identified metrics you need to develop your assessment? Be sure to identify each metric as external or internal.

Provide a description for each selected metric (total of six descriptions). Depending on the data provided, how can each metric affect the plans for the new clinic? Assuming the satellite clinic will open, how will you set up a monitoring and adjustment program? List the required steps. Why is a monitoring, evaluating, and adjusting strategy essential to overall organizational success for the new clinic? Provide two possible events that a successful monitoring program could identify and what adjustments could apply.

Answer 1

Financial KPIs are generally based on income statement or balance sheet components, and may also report changes in sales growth (by product families, channel, customer segments) or in expense categories. Non-financial KPIs are other measures used to assess the activities that an organisation sees as important to the achievement of its strategic objectives. Typical non-financial KPIs include measures that relate to customer relationships, employees, operations, quality, cycle-time, and the organisation’s supply chain or its pipeline. Some prefer to use the term ‘extra-financial’ rather than non-financial, suggesting that all measures that contribute to organisational success are ultimately financial. In addition to financial and non-financial, other common categorisations of performance indicators are quantitative versus qualitative; leading or lagging; near-term or long-term; input, output or process indicators etc.

There are a number of meaningful non-financial metrics, but four categories have significant impact on corporate performance:

1. Company reputation
2. Customer influence and value
3. Competitiveness  
4. Innovation

All of these non-financial metrics fall within the purview of the marketing organization. Therefore, marketing professionals must gain more experience measuring non-financial metrics.

some key non-financial metrics that marketing should own.

1. Brand Preference: This measure helps you understand the position of your company and your products and services in relation to competitors. Many marketers talk about awareness, which addresses whether people know you exist, but what truly matters is whether you are among “the chosen.” If you are conducting awareness studies, consider modifying these to learn how your company and its offerings rank in consideration. Your goal is to understand how you stack up relative to the competition.
2. Take Rate: Ok, you’ve built preference; the next key non-financial metric is your take rate. This is how many customers/prospects act on your call to action, whether this is an offer to download a case study, sign up for a free trial, or schedule an appointment. Calculating take rate is relatively easy. Here’s a quick example. Let’s say you are a cyber security company and you create a campaign that offers a 20% discount on a risk assessment to anyone who signs up within the next 30 days. The campaign costs $10,000 (direct and indirect.) Your email sends the offer to 1000 customers in your database and 100 register for the offer. Divide the number of uptakes (100) by the number of customers you engaged (1000). In this case 10% is your take rate. The acquisition cost is 10,000/100 or $100 per registrant. Is this a good number? We can decide whether the investment is a good return by determining whether the campaign had a good return and whether the people who took the offer bought the security services.
3. Customer retention and churn: These metrics are different sides of the same coin. While many marketing organizations focus on customer acquisition, adding customers while a significant number of existing customers are exiting out the back door is a sign of trouble. Retention is how many customers continue to buy from you and churn is the number of existing customers who are no longer buying your products or services. Obviously the goal is to increase the retention number and reduce the churn number. The key is to define when a customer is no longer a customer. For example. If your company provides a subscription based product you might decide defection/churn is 30 days after the renewal date.
4. Customer experience: Customer experience has direct impact on customer retention and churn. To measure customer experience you need to take into account all of the major touch points where a customer interacts with your company. Once you have these you will want to establish key criteria for what constitutes a superior vs. subpar experience.
5. Innovation: Innovation is your ability to bring new products/services to market successfully. Both the number of new products in the pipeline and the adoption rate of these new products reflect your company’s ability to bring value to your customers and the market.
6. Market share: Each of the prior metrics: preference, customer retention, take rate, customer experience, and innovation impact your company’s market share. Note that a key word in this metric is market. Market share is a primary measure for both the company and marketing’s success. An increase in market share has a number of benefits, including better operating margins, one of those financial metrics company’s often track. To measure your market share you will need to know how many customers and dollars are available in the market and then calculate how many of these customers and dollars are in your portfolio of products and services.

10 Financial Metrics to Measure the Performance

1. Adjusted Gross Income
2. Profit
3. Overhead
4. Labor Costs
5. Months of Cash
6. Collection Time
7. Debt/Asset Ratio
8. Utilization
9. Effective Hourly Rate
10. Client Concentration

Adjusted Gross Income

Focusing on gross billings has no significance for the financial health of the company. oftentimes bill clients for media buys, printing, or other large costs. The money paid to the agency simply makes a pit stop in the firm’s bank account. You need to understand this number to know if you are profitable or on the path to financial ruin.

Gross Billings - Cost of Goods Sold (COGS) = AGI

Overhead

Overhead includes expenses such as rent, utilities, insurance, and technical costs -- basically anything that is a fixed cost on a monthly basis.

Overhead costs should be measured against AGI and should be between 20% and 25%.

Labor Costs

Paying close attention to your labor costs against your AGI will help keep you on track to being profitable. Most industry experts say that no more than 40% to 50% of AGI should go to salaries -- this does not include retirement and bonuses, but it should include your own salary.

Months of Cash

According to David Baker of Recourses, you should have two months of cash stored in your business account. To determine this number, take the total amount in your checking, savings, and investments, and divide this by your monthly fixed expenses.

Cash Available / Monthly Overhead Expenses = Months of Cash 

Collection Time

Payment terms in the industry is a troublesome issue. The Association of National Advertisers (ANA) found that 43% of marketers surveyed had extended payment terms in the past year.

Understanding your collection time will reveal how much time you need to pay your own vendors and how efficient you are at collecting payments.

To find this number, first find your daily revenue:

Total Revenue / 365 = Daily Revenue

Accounts Receivable / Daily Revenue = Collection Time 

You should also determine the collection times for individual accounts. If a client regularly falls outside of your overall average, you can consider alternative strategies or have a frank discussion to improve the client’s time to pay.

Debt/Asset Ratio

This metric helps you understand your financial leverage, which is used to indicate how much risk the company has assumed. Most experts say a debt-asset ratio below 0.5 is ideal, as anything above this indicates that most of the company’s assets are financed through debt.

Total Liabilities / Total Assets = Debt/Asset Ratio

Utilization

Determining your agency’s utilization rate will help you understand how efficient your firm is.

To determine the yearly calculation for your agency, use this equation:

(Number of Billed Hours/2000) X 100 = Utilization Rate Per Employee

Industry standards suggest that employees should be able to achieve a 85% to 90% utilization rate.