The KPI Connection – SG&A

August 28, 2014 | Dr. Stephen Timme

KPIOn Tuesday we posted the metric of the month (SG&A). Today we’re going to take it one step further and talk about how SG&A translates into – or “connects” -- to key performance indicators (KPIs)….in other words, things you can actually talk to your client about impacting through your solutions.

If your client has expressed a need, or you’ve identified an opportunity to reduce SG&A as a percentage of revenue, HOW and HOW MUCH can your solution help them? Let’s take a look at an example of a tool we use here at FinListics. We call them Business Process Maps and they do just what you might think from the name – they map a financial metric to the business processes that impact it, the activities related to each process, and ultimately to the KPIs that can be impacted by changes or improvements in that business process. Here we’re looking at the Business Process Map for SG&A in the Telecom industry, and are focusing on the breakdown of Sales & Marketing for our example (click on image to enlarge it): The KPI Connection – SG&A The map connects SG&A to the Sales & Marketing process and shows marketing budget as a percentage of revenue as one KPI that can be impacted by changes in the underlying sales and marketing activities within a company. So, when you are talking to a telecom client who is focused on reducing SG&A as a percentage of revenue, one example of talking the HOW would be to show how your solutions reduce marketing costs... and by HOW MUCH that will ultimately reduce SG&A.

Operational KPIs In Action

Here’s how that conversation could go -- for a telecom company with $1 billion in annual revenue, industry averages show marketing costs to be 8.9% of revenue (trust us on this one). Your experience with other telecom clients shows your solution can reduce those costs by 5%-10% on an annual basis. Which means you can save your client $4.5M – $9M per year just in that one area with your solution! That’s the kind of talk that gets attention from client executives. Not only that, but you can also point out that delaying the decision to implement, or dragging the decision out through a long RFP process, will cost them too – in this example, between $375,000 and $750,000 per month! Compelling stuff…..

The key to getting the above information? Asking questions:

  • For your clients’ industries, what metrics, business processes and operational KPIs can your solutions significantly impact?
  • What are industry norms for these operational KPIs?
  • What ranges of improvement do your solutions provide for these KPIs and what is the cash flow value to your clients?

And of course – the most important question:

How can you impact these areas and ultimately drive results for your client’s business? For a deeper discussion on Operational KPIs and how they drive sales, see our previous blog post at http://www.finlistics.com/blog/introducing-a-new-series/.

Posted in Executive Industry Insights, KPI, Metric of the Month, Selling Strategies, Key Performance Indicator