7Jul/140

Seven Powerful Ratios to Start Tracking Now

Posted by WABC

By John Warrillow - Founder of The Sellability Score, a tool business coaches use to help their clients understand what drives a company's value.

Doctors in the developing world measure their progress not by the aggregate number of children who die in childbirth but by the infant mortality rate, a ratio of the number of births to deaths.

Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base as a percentage of the number of times they get the chance to try.

Acquirers also like tracking ratios, and the more ratios a company owner can provide to a potential buyer, the better.

Better than the blunt measuring stick of an aggregate number, a ratio expresses the relationship between two numbers, which gives them their power.

Here are seven ratios to talk about with your clients:

1. Employees per square foot 

By calculating the number of square feet of office space that a business rents and dividing it by the number of employees, the company can judge how efficiently they have designed their space. Commercial real estate agents use a general rule of 175–250 square feet of usable office space per employee.

2. Ratio of promoters and detractors 

Fred Reichheld and his colleagues at Bain & Company and Satmetrix, developed the Net Promoter Score® methodology, which is based on asking customers a single question that is predictive of both repurchase and referral. Here’s how it works: the business needs to survey their customers and ask them the question: “On a scale of 0 to 10, how likely are you to recommend <insert the company name> to a friend or colleague?” Then they need to figure out what percentage of the people surveyed gave a score of 9 or 10, and label that the ratio of “promoters.” The ratio of detractors is calculated by figuring out the percentage of people surveyed who gave a 0–6 score. The Net Promoter Score is calculated by subtracting the percentage of detractors from the percentage of promoters.

The average company in the United States has a Net Promoter Score of between 10 and 15 percent. According to Satmetrix’s 2011 study, the U.S. companies with the highest Net Promoter Score are:

USAA Banking 87%
Trader Joe’s 82%
Wegmans 78%
USAA Homeowner’s Insurance 78%
Costco 77%
USAA Auto Insurance 73%
Apple 72%
Publix 72%
Amazon.com 70%
Kohl’s 70%

3. Sales per square foot 

By measuring annual sales per square foot, the business can get a sense of how efficiently they are translating their real estate into sales. Most industry associations have a benchmark. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expenses, the more sales the business can generate per square foot of real estate, the more profitable they are likely to be.

Specialty food retailer Trader Joe’s ranks among companies with the highest sales per square foot; Business Week estimates it at $1,750 – more than double that of Whole Foods.

4. Revenue per employee 

Payroll is the number one expense of most businesses, which explains why maximizing revenue per employee can translate quickly to the bottom line. In a 2010 report, Business Insider estimated that Craigslist enjoys one of the highest revenue-per-employee ratios, at $3,300,000 per employee, followed by Google at $1,190,000 per bum in a seat. Amazon was at $1,010,000, Facebook at $920,000, and eBay rounded out the top five at $530,000. More traditional people-dependent companies may struggle to surpass $100,000 per employee.

5. Customers per account manager 

How many customers does the business ask their account managers to manage? Finding a balance can be tricky. Some bankers are forced to juggle more than 400 accounts and therefore do not know each of their customers, whereas some high-end wealth managers may have just 50 clients to stay in contact with. It’s hard to say what the right ratio is because it is so highly dependent on the industry. A business should slowly increase the ratio of customers per account manager until they see the first signs of deterioration (slowing sales, drop in customer satisfaction). That’s when they know they have probably pushed it a little too far.

6. Prospects per visitor 

What proportion of the business’s website visitors “opt in” by giving the business permission to e-mail them in the future? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advises companies like Google, Apple and Sony on how to convert more of their website traffic into customers. Dr. Blanks and Mr. Jesson state that there is no such thing as a typical opt-in rate, because so much depends on the source of traffic. They recommend that rather than benchmarking the business against a competitor, benchmark it against itself by carrying out tests to beat the current opt-in rate.

They suggest that the easiest way of increasing opt-in rate is to reward visitors for submitting their e-mail addresses by offering them a gift they’d find valuable. Information products – such as online white papers, videos and calculators – make ideal gifts, because their cost per unit can be almost zero. Using this technique and a few others, Conversion Rate Experts achieved a 66 percent increase in the prospects-per-visitor rate for SOS Worldwide, a broker of office space.

7. Prospects to customers 

Similar to prospects per visitor, another metric to keep an eye on is the efficiency with which the business converts prospects – people who have opted in or expressed an interest in what the business sells – into customers.

Conversion Rate Experts  recommends that businesses monitor the rate at which they are converting qualified prospects into customers and then carry out tests to identify factors that improve that ratio. Conversion Rate Experts more than doubled the revenues of SEOBook.com, the leading community for search marketers, by converting many of SEOBook’s free subscribers into customers. Techniques that were found to be effective included (perhaps counter=intuitively) restricting the number of places available; allowing easier comparison between SEOBook and the alternatives; communicating the company’s value proposition more effectively; and simplifying its sign-up process. The trick is to establish the benchmark and tinker until it improves.

More than just raw numbers, ratios give you a more insightful way to analyze your client’s business.

John WarrillowJohn Warrillow is the founder of The Sellability Score, a tool business coaches use to help their clients understand what drives a company's value. John is the author of Built to Sell: Creating a Business That Can Thrive Without You. Between 1997 and its acquisition by The Corporate Executive Board (NYSE: CEB) in 2008, John Warrillow led Warrillow & Co., an advisory firm providing marketing advice for reaching the Small & Medium Business (SMB) market segment to companies such as American Express, Apple, Bank of America, Dell, eBay, Google, IBM, Microsoft, RBC Royal Bank, Sprint, VISA, and Wells Fargo. John has been recognized by B2B Marketing as one of the top 10 Business-to-Business marketers in the United States.
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1Jul/140

Leadership Is A Contact Sport: Ask

Posted by Marshall Goldsmith

Leadership can be viewed as a relationship not between the coach and the "coachee," but between the leader and his or her colleagues.  In Marshall Goldsmith's video blog below, you can learn the eight steps to effective leadership development.

Marshall Goldsmith is a proud member of and partner with the WABC.  In both 2011 and 2013 he was ranked as one of the Top Ten Business Thinkers in the World – and the highest ranking executive coach – at the biennial Thinkers 50 ceremony in London.  He was also the recognized in 2011 as the World’s Most Influential Leadership Thinker.  Dr. Goldsmith is the author or editor of 34 books, including the New York Times bestsellers, MOJO and What Got You Here Won’t Get You There.

 

If you wish to reproduce this article in any material form, you must first contact WABC for permission.
24Jun/140

Leadership is a Contact Sport

Posted by Marshall Goldsmith

Leadership is a relationship not between the coach and the “coachee,” but between the leader and his or her colleagues. Learn the eight steps to effective leadership development in this series of Marshall Goldmisth's video blog.

 

Marshall Goldsmith is a proud member of and partner with the WABC.  In both 2011 and 2013 he was ranked as one of the Top Ten Business Thinkers in the World – and the highest ranking executive coach – at the biennial Thinkers 50 ceremony in London.  He was also the recognized in 2011 as the World’s Most Influential Leadership Thinker.  Dr. Goldsmith is the author or editor of 34 books, including the New York Times bestsellers, MOJO and What Got You Here Won’t Get You There.
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18Jun/140

Teaching Leaders What to Stop: “That is Great, BUT…”

Posted by Marshall Goldsmith

In this week's video blog by Marshall Goldsmith, he describes why, "When there is no "great,"  All there ever is, is "but."

 

Marshall Goldsmith is a proud member of and partner with the WABC.  In both 2011 and 2013 he was ranked as one of the Top Ten Business Thinkers in the World – and the highest ranking executive coach – at the biennial Thinkers 50 ceremony in London.  He was also the recognized in 2011 as the World’s Most Influential Leadership Thinker.  Dr. Goldsmith is the author or editor of 34 books, including the New York Times bestsellers, MOJO and What Got You Here Won’t Get You There.
If you wish to reproduce this article in any material form, you must first contact WABC for permission.