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.

TypeMeasurementDefinition
Financial measures

 

 

 

 

 

TurnoverSales, including or excluding GST for any given period
Gross marginNet sales less cost of sales, after reductions for markdowns, theft, discount and stock loss
Store contributionGross margin less store operating costs
Return on capital employedContribution 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 flowStatement of net excess of periodic income over outgoings
Customer measures

 

 

 

 

 

 

 

 

 

Market shareShare of local market spending, by customer group, product category, period, etc.
AwarenessPercentage of target customers aware of the shop
FootfallNumber of customers entering the store
Conversion ratePercentage of visitors who purchase
Walk-out ratePercentage who leave with nothing
Average transaction valueAverage value of each sale made
Multiple purchasingPercentage of shoppers buying linked items
Visit frequencyElapsed time between visits to shop
LoyaltyYour share of periodic fashion shop visits
Advocacy rateCustomer recommendation measure
Productivity measures

 

 

 

 

 

Sales/profit per sq. ft. or sq. mt.Performance related to floor space
Sales/profit per linear foot or metrePerformance related to display space
Sales/profit per employeePerformance related to staff level, usually expressed as FTE full-time equivalent
Stock turnoverHow many times average stock is sold in a financial year
Sell-down rateSpeed at which a given line sells in store
Take-up ratePercent of customers purchasing a promotion
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