Opex to Sales Ratio
What Does It Mean?
“Opex” stands for “operational expenses”; the Opex-to-Sales ratio stacks up how much it actually costs to run your business against how much you bring in from sales.
Why Does It Matter?
This is an incredibly important KPI because it gives you vital insight into how efficient your company is. Essentially, it tells you how much you currently have to spend in order to successfully close each sale – or, put another way, how much each sale costs you. For example, if you have an Opex-to-Sales ratio of 0.75, that means you’re spending 75 cents on earning every dollar your company makes in sales. While a high Opex-to-Sales ratio might be inevitable when you’re starting out, ideally you want this number to keep going down. This would suggest that your organization is getting more and more efficient and streamlined, increasing your profit potential and helping you to grow faster.
How Do You Measure the KPI?
To calculate your Opex-to-Sales ratio, you’ll need to divide your total operating expenses by net sales figures. Note that operating expenses only refers to the standard day-to-day costs of running the business – it doesn’t include things like significant capital investments.
What Data Sources Would You Use to Measure the KPI?
For this KPI, you’ll most likely draw in financial data from your ERP, TMS or accounting software, alongside information from SalesForce or an equivalent platform that you use to keep track of sales.
Give Me an Example…
Let’s imagine you’d introduced a new service six months ago and it’s selling well, but it seems to be adding a significant workload to your team, resulting in a ton of overtime. As a result, you’re not sure exactly how much value the service really brings to the business.
By tracking your Opex-to-Sales figures since you introduced the service, you see that the ratio spiked along with sales and stayed high, suggesting that, while your overall revenue went up, you’re spending more per dollar earned to offer the service than before. This tells you that, in order to maintain profitability and growth, you’ll need to either look for smarter, more efficient ways to manage the workflow, or rethink your price point for this service.
What Benchmark / Indicators Should I Use?
Useful indicators here include: