The Value of a Minute

Have you ever thought about what can be accomplished in just 60 seconds? One minute may not seem like much time, but it's quite valuable. In 60 seconds, you can make a phone call, send a text message, or take a photo. You can even perform a quick desk exercise routine. The possibilities are endless! But in business, 60 seconds can also mean the difference between profit and loss. Understanding the concept of revenue and cost per minute is crucial for any business owner or manager who wants to make informed decisions and optimize their operations. Let's explore these topics in more detail.

Revenue Math Is Simple

To calculate revenue per minute, you need to know your total revenue and the number of minutes you're measuring. To simplify the math for this exercise, we'll use 500,000 minutes instead of the actual 525,600 minutes in a year, as long as we are consistent, everything computes correctly. Ok with that established, let's say your business earned $2 million in revenue last year, and you want to know your revenue per minute. Simply divide your total revenue by the number of minutes you're measuring:

Revenue per minute = Total revenue / Number of minutes

In this case, the calculation would be:

Revenue per minute = $2,000,000 / 500,000 = $4.00 per minute

So, for every minute that passes, your business is generating $4.00 in revenue. Of course, this is just an example, and your actual revenue per minute may be higher or lower depending on your business and industry.

Key Process Indicators Everyone Can Understand

Now that we understand how to calculate revenue per minute, we can use RPM as the basis for other key performance indicators (KPIs) to measure our business performance. KPIs help us track our progress toward specific goals and objectives. Using RPM as a benchmark, we can establish a clear and measurable target for our business operations. The best KPIs are ones that all employees can understand and work towards, regardless of their role or level of responsibility. This accessibility helps create a sense of ownership and accountability throughout the organization. Let's explore some examples of revenue-per-minute KPIs you can use in your business.

Breaking down large annual revenue figures into smaller time metrics, it becomes easier to interpret, understand, and compare company sales results. Similarly, examining profitability on a per-minute basis can be enlightening for investors, analysts, and management.

Profit Per Minute

If a business generates $50,000 in profit over a year, then the profitability per minute would be approximately $0.10. On the other hand, if a business incurs $10,000 in new costs over a year, then the cost per minute would increase by approximately $0.02. By tracking profitability and cost per minute, businesses can identify areas where they can improve their operations and increase profitability.

Measuring profitability per minute can provide insights into the efficiency and effectiveness of your employees in generating profit for your business. Employees are often the most valuable resource and expense for many businesses, and understanding their impact on profitability is essential to optimizing company performance. If you have two employee groups who work on different product lines, you can calculate the profitability per minute for each group’s product line to determine which one is more profitable under your current approach. By analyzing the data, you can identify which processes move the company forward and which are holding it back. These simple numbers can quickly inform decision-makers that it’s costing them more to not invest in new equipment. Similarly, if you have multiple employees working on the same product or service, you can calculate the profitability per minute for each employee to determine which ones are more effective and efficient. This information can be used to optimize your workforce, improve employee performance, and ultimately increase profitability.

Cost Per Minute

Cost per minute (CPM) is the next powerful KPI in this group. (CPM) can be used to evaluate the company's investments in tools and people and compare them to the industry sector and its chief competition. For example, suppose the average industry cost per minute is $0.08 and your company's cost per minute is $0.10. In that case, the company may want to examine why they are spending more than the competition and look for ways to reduce costs without sacrificing quality. Perhaps you are a market leader because of that extra spend, but you must measure it before comparing. By setting KPIs for cost per minute, businesses can establish clear operational targets and hold themselves accountable for improving efficiency and reducing costs. This information can also be used to make informed decisions about where to invest resources and identify areas for improvement.

Why All This Focus On “Minutes”?

KPIs based on minutes are important because they make financial metrics relatable and easy to understand. By breaking down revenue, profitability, and costs into per-minute, per-hour, or per-day metrics, businesses can gain insights into their operations and identify areas for improvement. These metrics allow for unbiased and objective evaluation of business performance, removing the influence of personal bias and subjective opinions that can often be applied incorrectly to business decisions. Using minute-based KPIs helps businesses make data-backed decisions. This leads to improved efficiency, increased profitability, and long-term success.

Computers are Expensive

Imagine you're at home after a long day at work when your high school student comes home and informs you that they accidentally broke their laptop and it will need to be replaced. The new laptop costs $1,500, which is a significant expense for most families. If you are like most, you are quickly calculating what you can’t do with that cash now that you need to buy a computer, and the impact on your finances is real and immediate.

Using the national average family income in the United States of $100,000 per year and 500,000 minutes per year, we calculate that the income per minute is approximately $0.19. The laptop cost per minute over a year is approximately $0.003. This means that for every minute the laptop is in use, it will cost approximately 1.5% of your family's income per minute.

Business Computers are Expenses

You’re a business owner or key decision maker, and you've noticed that one of your engineering CAD stations is outdated and slower than your competitors are using. You start to consider whether it's time to upgrade the equipment, but you want to make an informed decision backed by data. You have been told that the new CAD computer will cost $3500, which is outrageous because you are still frustrated by the $1500 new laptop at home. But is it really what it seems? Using your CPM KPI, you can figure it out rationally.

The gross revenue of your business is $2 million per year, and you know that your revenue per minute is $4.00. The cost of the new CAD station is $3,500, which yields a $0.007 CPM at 0.175% of gross revenue. That makes the CAD computer, which happens to cost 2.3 times more than the laptop, nine times less burdensome on your organization as a percentage than the laptop is to your family. But it gets better.

Assets have a Life Cycle

Businesses operate on longer time horizons than individuals or families. The engineering CAD station, in our example, will be expected to last 3 to 5 years, and the need to replace it on a cycle is understood. The family laptop that died unexpectedly was a surprise; if not for that event, most families hope it will last forever and simply don’t plan for its replacement, thereby magnifying the emotional impact of the cost. Because of this, a business operating with an effective Asset Life Cycle Plan avoids the emotional part altogether. These proactive businesses understand that the CAD station has a worst-case adjust 3-year hardware cost of $0.003 CPM at 0.075% of gross revenue. Therefore, the revenue-generating CAD station is 20 times more affordable for these organizations than the laptop. The question is not whether you can afford the computer. It’s at what level you want to depreciate them. Asset Life Cycle Plans make the depreciation of computer items under $10k unnecessary, but that’s a different article.

By using per-minute metrics over a three-year period, we can gain a more accurate and objective understanding of the total cost of ownership for any new technology projects, which can help inform our decision-making and priorities without being unduly influenced by personal biases or emotions.

Avoid your bias. It’s real

Purchasing “big ticket” items like cars and computers in your personal life often involves emotion. If you buy them at work, you will likely bring those personal experiences with you. Because of the overlap, it’s essential to use a different type of discipline at work and replace your emotion analysis with a KPI one. What you learn at work can be applied to the home situation, but what you learn at home should probably be applied in the office.

In conclusion

Understanding your total cost per minute for technology is critical when evaluating your business performance and competitiveness. Breaking down large figures into smaller time-based metrics like revenue per minute, profit per minute, and cost per minute, allows businesses and decision-makers to better understand their operations and make informed choices based on approachable data rather than the emotions that big numbers evoke. This critical reduction to simple numbers is especially important when considering new projects and tools, which can significantly impact your bottom line.

Always consider the one, two, or three-year lifecycle costs of new technology projects. This helps allocate resources and ensures that technology investments align with business goals. In the fast-paced world of technology and business, understanding your cost per minute for technology is essential to staying competitive and agile. You can drive long-term growth and success by strategically tracking and analyzing your technology investments. Whether you are a small business owner or a large corporation, knowing your cost per minute for technology can help you stay ahead of the curve and position your organization for success in future years.

Now, ask yourself, is your IT department or Technology Service Provider doing this for you?

Want to learn more ways to enhance your technology journey, contact us info@technosis.biz

Cost Per Minute – Remove Emotion From Technology Decisions