Return on Meeting Expense (Part 2): Measuring the Return
by CFOEd
In the Bizdom, Return on Meeting Expense (Part 1): Measuring the Expense, we explored how to measure a meeting’s expense both in time and dollars. In this Bizdom, we investigate how to measure a meeting’s expense breakeven in terms of operating expenses and revenue. In Part 3, we examine how better management of meetings “funds” time to spend on more productive activities.
You can use the SmartSamantha Return on Meeting Expense Business Tool to measure your meeting expenses and conduct breakeven analysis.
As you learned in Part 1, Return On Meeting Expense (ROME) is simply a meeting’s expense relative to the benefits from a holding the meeting.
ROME = Meeting Benefits / Meeting Expense
In this Bizdom, we expand on the example in Part 1:
- 5 people attend the meeting,
- with an average salary cost per hour of $35, and
- the meeting is held once a week for 1 hour.
The meeting expense is shown in Table 1.
Table 1 - Meeting Expense*
a.
|
Number of People Attending Meeting
|
5
|
b.
|
x Length of Meeting (in Hours)
|
1.0
|
c.
|
= Individual Meeting Expense in Hours
|
5.0
|
d.
|
Number of Times Meeting is Held Annually
|
52
|
e.
|
= Total Annual Meeting Expense in Hours (c. x d.)
|
260
|
f.
|
Average Hourly Cost Per Person Attending Meeting
|
$35
|
g.
|
Individual Meeting Expense in Dollars (c. x f.)
|
$175
|
h.
|
= Total Annual Meeting Expense in Dollars (d. x g.)
|
$9,100
|
*Use the SmartSamantha Retun on Meeting Expense Business Tool to measure your meeting expense.
Breakeven Analysis
Now the question is, what benefits do you need to receive to justify holding this meeting? As mentioned in Part 1, some meetings are simply a cost of doing business and practically speaking, breakeven analysis does not apply. But for many meetings, it does. Breakeven is defined in terms of how the meeting results in helping better:
- grow revenue, or
- manage operating expenses.
In some cases, it may do both!
Also, by breakeven, we mean not just recovering your meeting expense, but also generating a Return. Business is all about recovering our expenses and investments and generating a return.
We first explore breakeven for better managing operating expenses since it is pretty straightforward. The meeting’s annual dollar expense in Table 1 is $9,100 (line h). Let’s say the meeting’s focus is to help better manage expenses like procurement, or do a better job of hiring and, hence, reduce employee turn, which is very expensive. As shown in Table 2, the minimum breakeven is the meeting expense: $9,100. But let’s say that for the effort and risk, you target a 25% return. The breakeven with a 25% return is $11,375 ($9,100 x 125%).
Table 2 - Return on Meeting Expense Breakeven Analysis
a.
|
Total Annual Meeting Expense in Dollars (line h. in Table 1)
|
$9,100
|
b.
|
Targeted Return
|
25%
|
c.
|
Gross Breakeven Factor (100% + b.)
|
125%
|
d.
|
Annual Operating Expense Breakeven (a. x c.)
|
$11,375
|
|
|
|
e.
|
Operating Income Margin on Incremental Revenue
|
10%
|
f.
|
Minimum Revenue Breakeven (a. / d.)
|
$91,000
|
g.
|
Revenue Breakeven with Return
|
$113,750
|
To calculate the revenue breakeven, we need to know the operating income margin on the incremental revenue.
- Operating Income is revenue less all operating expenses like cost of goods sold and selling, general and administrative.
- Operating income margin is operating income as a percentage of revenue.
There are many different ways of estimating the operating income margin on incremental revenue. If you ask 10 different people, there will be 10 different answers. So for this example, suppose that the answer is 10%. This means for $1.00 of revenue, operating income is $0.10.
As Table 2 shows, the revenue breakeven is $113,750! Many people are often surprised by the amount of incremental revenue it takes to justify a meeting expense relative to the operating expense breakeven of $11,375. But think about it. For operating expenses, each dollar saved goes straight to the bottom line. With a 10% margin, $113,750 in revenue generates $11,375 ($113,750 x 10%) in operating profit, which is the same as the operating expense breakeven. So should you focus more on better managing operating expenses than growing revenues? Absolutely not! One of the most important drivers of business value is growing the top line. Managing operating expenses is critically important but a business can not save its way to prosperity.
The breakeven analysis in Table 2 is a very effective way of showing people a meeting’s real opportunity cost. You probably work people who like to call meeting after meeting. But are those meetings helping you in a tangible way to grow revenue, or better manage expenses, or both?
So before scheduling that next meeting, ask yourself the following questions:
- How will this meeting help grow revenue or better manage operating expenses?
- What is the meeting’s expense?
- How much more do we need to generate in revenue to breakeven? Where will this revenue come from?
- What is the operating expense breakeven? Exactly what operating expense will be better managed?
- Why have the meeting at all? Are there more effective ways of accomplishing the same thing?
- Do we need everyone to attend?
- How long does it really need to be?
When you start asking these questions and finding the hard answers, you may be surprised at how many fewer meetings you hold – and those you do hold will tend to be more focused and productive.
Check out the SmartSamantha Return on Meeting Expense Business Tool to help you conduct all the analytics and make a more informed decision before scheduling that next meeting.
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