Key Performance Indicator #4: Labor and Management Expense as a Percent of Total Revenue — Less Than 15 Percent

What does it take to have a profitable operation? There are many ways to arrive at that answer, but Stan Bevers, a long-time economist with Texas A&M AgriLife Extension Service and popular speaker at Cattle Raisers Conventions, has identified 13 of what he calls Key Performance Indicators (KPI) for Beef Cow-calf Operations.

So far this year, we have looked at the first 3 KPIs. This month, we address KPI 4, labor and management expense as a percent of total revenue; the number should be less than 15 percent.

Bevers says that labor and management expense can be the most variable cost across beef herds. To calculate this KPI, determine what the total labor and management expense is. If the ranch uses only hired labor and management, this figure is relatively easy to determine. If an owner operates the ranch, he must establish a figure for his labor in order for this KPI to be comparable.

In either case, items such as payroll taxes and employee benefits are higher than most people realize due to the benefits that hired managers receive. To interpret this KPI, the ranch owners should target spending less the $.15 for labor and management per one dollar of revenue generated.

Bevers recently launched Ranch KPI, a ranch management consulting business, specializing in building ranch management information systems that allow for ranch accounting, analysis, and finding efficiencies measured as Key Performance Indicators. In order to have useful analysis, the data must be accurate, while also being simple in the data entry process. To find more information about KPIs, what it takes to be a successful rancher, or to schedule a consultation, visit ranchkpi.com. ❚