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Business performance and metrics for SLAs

I have a favourite question in conversations with start-ups and new clients. I ask it very early in a first client interview.

It's a question which leads to discussions about the client's business or commercial situation. I ask the same question of clients who seek SLAs (so-called service level agreements).

It's a question designed to shed light on the client's business model. It also helps identify the business performance metrics or measures which help prepare a good contract to achieve an effective legal solution.

My favourite question is: "Tell me precisely how you'll make money or add value, and I'll provide legal advice."

I ask it to firstly understand non-legal issues and considerations. As illustrated in a table below, non-legal considerations greatly help to craft a service level agreement or prepare performance metrics or measures to include in a contract.

Why it is a good question

There's a second reason for the question. Non-legal issues are more common for business clients than legal issues. To produce a better legal solution, in business law it is best to consider the most common and vital business issues even if they initially appear to be irrelevant to the assumed legal solution.

Good contracts have always involved SLAs. Industry knowledge helps set out a more useful SLA. When you come across a good set of metrics or measures, keep it as a reference.

SLA template

I particularly like the content and layout of the measures in the table below. They are for a fashion retailing shop or outlet. They would help answer my favourite client interviewing question for such a business. They would help work out how to deal with many business and legal issues as follows, which might be picked up in a contractual SLA or a related management review or monitoring template:

  • Site selection for a shop
  • Investigation of whether a shop lease is appropriate to take up or renew
  • Performance measures for employee contracts and performance management
  • Assessment of retail outlet return on investment for a fashion chain
  • Marketing, eg assessing specific campaigns, advertising or sponsorship
  • Selection of IT and equipment to build, buy, licence or lease, eg CRM systems versus security cameras versus in-store demonstration videos

 

Performance measures for a fashion shop or outlet

Source: Table 6.8 in The Fashion Handbook by Tim Jackson and David Shaw (Routledge, London, 2006), p. 108.

Type Measurement Definition

Financial measures

 

 

 

 

 

Turnover

Sales, including or excluding GST for any given period

Gross margin

Net sales less cost of sales, after reductions for markdowns, theft, discount and stock loss

Store contribution

Gross margin less store operating costs

Return on capital employed

Contribution as a percentage of investment in stock and equipment

Return on increased investment (ROII)

Additional contribution resulting from extra investment in store refit, etc.

Cash flow

Statement of net excess of periodic income over outgoings

Customer measures

 

 

 

 

 

 

 

 

 

Market share

Share of local market spending, by customer group, product category, period, etc.

Awareness

Percentage of target customers aware of the shop

Footfall

Number of customers entering the store

Conversion rate

Percentage of visitors who purchase

Walk-out rate

Percentage who leave with nothing

Average transaction value

Average value of each sale made

Multiple purchasing

Percentage of shoppers buying linked items

Visit frequency

Elapsed time between visits to shop

Loyalty

Your share of periodic fashion shop visits

Advocacy rate

Customer recommendation measure

Productivity measures

 

 

 

 

 

Sales/profit per sq. ft. or sq. mt.

Performance related to floor space

Sales/profit per linear foot or metre

Performance related to display space

Sales/profit per employee

Performance related to staff level, usually expressed as FTE full-time equivalent

Stock turnover

How many times average stock is sold in a financial year

Sell-down rate

Speed at which a given line sells in store

Take-up rate

Percent of customers purchasing a promotion


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