Examining the costs your business incurs to provide services is a key fiscal operation in maintaining healthy finances. Having a keen eye to your costs is also a strategy for company growth, particularly if you uncover methods to lower your costs. Lower costs automatically increase your profits or mean additional funds to deliver more services. Cost per unit service, cost per client outcome and cost per services completion are three metrics that provide a snapshot of how your organization spends money.
Quantifying Service-Based Organizations
Service-based organizations can be for-profit and nonprofit. Regardless of the business type, it is traditionally more challenging to determine cost and profit margins for service-based organizations. Unlike product-based companies, service-based organizations cannot reliably use formulaic calculations to determine costs because the nature of service and delivery methods vary widely from business to business. Service-based organizations need to look closely at all of the tasks, time and materials used to deliver a service in order to quantify costs.
Cost Per Unit Service
The cost per unit of a service is a dollar amount that reflects what a business spends to offer a specific service. Business managers use the calculation to determine what costs go into providing a service in order to strengthen business operations and build a profitable business. The cost per unit service has several input factors, including a specific service, the number of times it is provided, salaries of those employed in delivering the service and any materials used.
Cost Per Client Outcome
Many organizations measure effectiveness of its operations by client outcomes as opposed to profit. A client outcome is the end result expected of a client who receives a service from the organization. For example, an outcome for a training company is a client who passes a related certification exam. Cost per client outcome is a calculation that factors in all of the money spent in order to produce clients capable of passing the exam. The cost per client outcome is a critical number in fundraising for not-for-profits.
Cost Per Services Completion
Cost per services completion is similar to costs per client outcome, with the key difference being that the client is removed from the equation. Generally, this is an easier data point to quantify because it does not involve defining and tracking client outcomes, which can be external to business operations. Cost per services completion is useful for services that are cyclic because it tabulates monies spent from an initiative's start to finish. These numbers can be reviewed and optimized to control spending for the next iteration of the service.
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