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Financial Ratios To Show Leaking Money

If you would like a complete list of financial ratios that are typically used in the business world to evaluate companies based on their financial results, please google “financial ratios for ___ business” and insert your niche in the blank space.

This page is about financial ratios and relationships that will indicate the business is leaking money.

These simple calculations can be reviewed for any size of business. Whether the business is a small one-person shop or a multi-office organization these ratios are important.

Ratio Repeat Customers

Calculate the percentage of customers that buy:

  • once
  • twice
  • three times
  • more than three times?

Keep going until it makes sense for your business. Remember a repeat customer is someone who comes back to buy more, not a customer who buys more than once on the first visit.

It is often easy to sell to a customer the first time, it is the second sale that is the most valuable. The customer knows you now and is willing to come back for more. Plus the first sale is generally costly to acquire whereas the second sale in most cases does not cost the business as much to acquire.

Total Average Customer Value

Calculate the total average “basket” value of the products they buy at one time:

  • first time
  • second time
  • third time
  • more than three times?

This concept is similar to the ration of repeat customers except we are looking at how much a customer buys at one time. This ratio will let you know if there is more that can be done to provide greater value to your customers at one time.

How can the business provide more value to the customer at one time and still fulfill your business mandate? Why make them go somewhere else if your business can do more for them now?

Total Average Customer Longevity

How long do customers stay with the company? This is another reflection of how well you are supporting the customers needs.

  • weeks?
  • months?
  • years?
  • cycles?

Return on Assets

  • Take the total bottom line Income the business is generating (Sales minus expenses).
  • Divide it by the dollar value of the assets the business is using. This would include computers, machinery, vehicles, specialized equipment.
  • This is the return on assets in the business.

Operating profit per employee

  • Take the total bottom line Income the business is generating (Sales minus expenses).
  • Divide it by the number of employees.
  • This is the total operating profit per employee.

Revenue per employee

This calculation indicates the productivity of the business.

  • Take the total (top line) Sales the business is generating.
  • Divide it by the total number of employees
  • This is the total revenue per employee.

Revenue per employee per hour

This calculation indicates how well the people hours are working in this business.

  • Take the total (top line) Sales the business is generating.
  • Divide it by the total number of employees hours worked in the same period.
  • This is the total revenue per employee hour. This is what the business is earning per working hour.

If this calculation is less than the highest paid person in the company, the business is leaking money. If this calculation is less than what the lowest paid person in the business earns in their job, then the business is leaking money in a big way!

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