If you wish to go from Mumbai to Bangalore by a car and you wish to reach there in 24 hours, what all calculations you need to make?
Just find the distance between the two places – which is say 1000 Kms and divide it by time available which is 24 hours. So, answer is approximately 42 kms per hour. So, if you go by 60 kms per hour you would easily be able to stop once or twice for breaks.
But if you go at 30 kms per hour and also take breaks without looking at the watch nobody can tell you when you will reach Bangalore. Yes one an certainty say that, they will not reach Bangalore in 24 hours.
A firm of Chartered Accountants has to pay to its 7 employee’s total salary of Rs. 5 lacs per month. It’s rent, electricity etc. expenditure (called overheads ) is Rs. 3 Lacs per month. It hopes to make a profit of Rs. 2 lacs per month to keep its two partners happy.
At what speed, they must make money to achieve the profit of Rs. 2 lacs at the end of the month?
Now you will ask –
What’s speed got to do with making money.
It’s simple arithmetic.
The firm has to achieve a sales target of Rs 10 lacs p.m. (Salary +Overheads+ profit =5+3+2) to be able to make a profit of Rs. 2 lacs by the end of the month.
Professional firms have a unique disadvantage. They can’t accumulate their goods like a trader and sell it whenever the customer comes.
They are dealing in time which is perishable and time not utilized for giving service becomes worthless. So on a particular day if there is no client to receive service then, that day will bring in no revenue.
Keeping this in mind you must do the same calculations as we did for our Bangalore trip.
The time available is a month or say 30 days – 5 Sundays = 25 days .
Thus, to make a profit of Rs. 2 lacs the firm must earn at least Rs. 40000 per day. (1000000/25)
If the firm does not drive – to make money, at the speed of Rs. 40000 per day – every working day, it will not make the desired profit by the end of the month.
And if you don’t make money at all (or make lower than the daily target) on one or more days, the firm will see its target of Rs 2 lacs p.m. slipping away. (Recall your memories of pandemic and you will readily agree)
Now having learnt the concept, we must understand that we need to also set similar speed for the partners and it’s 7 employees. And track it individually for assessing collective performance.
Are you tracking your firm’s speed of making money? Have you decided the rate at which your firm or individuals should make money per day – per hour. Does it take into account ups and downs in demand? No?
EFF Factor not only helps you decide the rate at which every employee’s time should be converted into money but also tracks the speed of making money on real time basis hourly- daily. When the speed drops, it alerts you instantly.
Now offering discount to special clients or charging premium for special service is nothing but decreasing or increasing the speed of making money. Once you start measuring your speed with EFF Factor, you will always know the impact of such decisions on your top line and bottom line, instantly.
Think EFF Factor.