David Cummings on Startups

Efficiency Ratios of Employees to Startup Metrics

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David Cummings

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An energy efficiency display by Panasonic at t...
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As a startup begins to scale conversations internally change from “how do we keep the lights on” to “how do we improve our efficiency and get better economies of scale.” As part of this mind shift, one of the inevitable performance indicators that comes up is around the efficiency ratio of employees to customers or revenues. One of the stats that’s been a focus historically is the revenue per employee, with companies like Google being exceptionally high.

For a startup that is scaling, revenue per employee might not be the best measure yet because some departments are going to have more economies of scale than others and the company is still likely investing heavily in areas. While scaling, more specific efficiency ratios like the following are important:

  • Customer support employees to customers older than 60 days
  • Client services employees to new customers
  • Sales reps to new customers
  • Marketing employes to new qualified leads

The goal is not to blindly add more and more people to a department because of growth but rather continually looks for ways to get better economies of scale from team members and track how that scalability changes over time.

What else? What do you think of efficiency ratios around employees to startup metrics?

Comments

2 responses to “Efficiency Ratios of Employees to Startup Metrics”

  1. Chris Puttick Avatar
    Chris Puttick

    I can’t imagine a worse measure. How many employees your company has should be measured by the need of your company’s products, customers and culture; the difference between the revenue per employee ratios of Craigslist or Google and Toyota or Sainsbury’s is more reflective of their products than anything else.

    To try and measure a startup in this way would only mislead. Employ the people you need to employ to deliver the products and services that your customers want. Don’t try and go down the MBA/stockmarket route of trying to assess/manage with abstracted concepts, that way lies failure. To be used only in the event of a pending IPO…

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  2. david_moeller Avatar
    david_moeller

    Customer support employees to customers older than 60 days, client services employees to new customers, sales reps to new customers, and marketing employees to new qualified leads are narrow metrics for a particular type of startup, namely, one that relies upon: customer support, a direct or indirect sales force, and marketing employees. This seems to fly directly against what David Skok at Matrix Partners deems “The Old World Evolving to a New World”.

    Business Model Innovation is a thought-provoking analysis of how new startups needn’t rely upon dated business models predicated upon direct sales forces and a large marketing spend. Skok argues that by focusing first on a business model that has marketing built in – freemiums or free trials, with the freemium touted as superior to the free trial due to viral growth potential – customer acquisition costs (CAC) will stay low and customer lifetime value will be a multiple of CAC.

    http://www.slideshare.net/DavidSkok/business-model-innovation-5286954

    Aside: Slide 50 features a great example of how sales complexity and customer acquisition cost relate.

    Ultimately, I think that efficiency ratios for startups should be predicated upon the primary revenue and cost drivers for that particular startup, and for “Old World” startups, perhaps the metrics listed here can be helpful. For “New World” startups, Skok’s blog is probably a good resource.

    Reply

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