The impact of the credit crunch has meant small and medium-sized
companies have fewer resources to spend on evaluating the
efficiency of their business. Unlike large firms, which can afford
to hire expensive auditors, smaller businesses often have to make
sense of their own processes armed with nothing more than a pocket
calculator. So how can businesses determine efficiency without
breaking the bank? My advice is to work out their cost per
transaction (CPT), writes Robert Epstein, business lead, small
medium business,Microsoft
UK.
CPT is a financial measure which represents the total cost of
managing a business transaction. It factors in everything needed to
make the transaction possible, including IT, documentation and
labour costs, and puts it all in to a single monetary figure. CPT
works by recognising that efficient businesses typically have a
lower cost per transaction than inefficient ones. By comparing your
CPT to other similar businesses it becomes possible to benchmark
your company and determine whether the processes you have need to
be improved.
About three months ago I spoke to a director of a small
engineering firm who was concerned that his business processes were
inefficient. I recommended that he used the
cost per
transaction calculator on Microsoft's website to determine
whether this was the case. A few days later I received an e-mail
from the director saying his CPT was £17.50. To put this in to
context, most companies have a CPT between £1 and £10 depending on
what business sector they are in. Food producers typically have a
low cost per transaction, between £1 and £4, because their invoices
consist of simple line items that can be easily processed.
Engineering firms, on the other hand, have a higher CPT, between £5
and £10, because their invoices are usually detailed and thus more
complex.
At £17.50, the director was able to see that his business
processes were inefficient and needed to be improved. After
discussing the issue with his IT supplier he discovered that part
of the problem was an archaic Sage ERP system which relied on DOS.
The system was not interacting with other parts of the business and
effectively doubled the time it took for each transaction to be
processed. Interestingly, the director told me recently that he
used his CPT calculation to justify to his stakeholders why they
needed to invest in a new ERP system. It never occurred to me of
using CPT in this way, as a sort of internal sales tool.
From my own experience, one of the most useful things about CPT
is the way you can use it to monitor efficiency. Back when I ran my
own small business I used CPT to monitor my internal processes
after new IT or financial systems had been deployed. By regularly
checking my cost per transaction I was able to see whether these
processes had improved the general efficiency of my business. Quite
often what thought had improved my business actually hampered
efficiency. It is for this reason that I think CPT is truly
worthwhile, and why I will continue to recommend it to small and
medium sized businesses.
Calculate your
own cost per transaction for free >>