This ratio is another ratio that is beneficial to track over a period of time. More important than the number is the change of the number over a period of time.
If the number drops quite quickly, it indicates either a rapid loss in sales, which would need to be analyzed, or it means that several new employees have been brought on recently.
Just as the change is more important than the number, so also is the explanation more important than the change. There is no reason to panic about a dramatic drop in the number if there is a good explanation. It is not going to be very likely that you will be unaware of a change in workforce or a drop in sales, so those make easy explanations and you will likely have a plan in place to improve those things. Just be aware of the small changes too–the unexpected things that tell a story you did not already know.
Also keep in mind that an increase is not always a good thing either. You can decrease your sales for the month and still increase this ratio by reducing your workforce. Again, know the story behind the changes.
This ratio can be used for targets as well. You may decide that you do not want to exceed a certain change in the number because then that means you have too few employees to handle customer service or production. In this case, you would set a max number for this ratio and make decisions to hire based on that ratio.
Always remember, when you have an explanation for the changes, you know how to handle the growth or reduction so keep an eye out for the unexpected changes.
Your business THRIVES on a solid FOUNDATION…