How do you measure your engineering team's financial performance?

1 Revenue per engineer

One of the simplest and most common ways to measure your engineering team's financial performance is to calculate the revenue per engineer (RPE). This metric shows how much revenue your team generates for each engineer on your team. It can help you compare your team's productivity and efficiency with other teams or industry benchmarks, and identify areas for improvement or investment. To calculate RPE, you simply divide your team's total revenue by the number of engineers on your team. For example, if your team has 10 engineers and generates $1 million in revenue, your RPE is $100,000.

2 Return on investment

Another important metric to measure your engineering team's financial performance is the return on investment (ROI). This metric shows how much profit your team generates for each dollar invested in your team. It can help you evaluate the effectiveness and impact of your team's projects, initiatives, or innovations, and justify your team's budget and resources. To calculate ROI, you subtract your team's total costs from your team's total revenue, and divide the result by your team's total costs. For example, if your team has $500,000 in costs and $1 million in revenue, your ROI is 100%.

3 Customer lifetime value

A third metric to measure your engineering team's financial performance is the customer lifetime value (CLV). This metric shows how much revenue your team can expect to generate from each customer over their relationship with your organization. It can help you understand your team's contribution to customer retention, loyalty, and satisfaction, and optimize your team's strategies for acquiring, serving, and retaining customers. To calculate CLV, you multiply your average revenue per customer by your average customer retention rate, and divide the result by your customer churn rate. For example, if your average revenue per customer is $10,000, your average customer retention rate is 80%, and your customer churn rate is 10%, your CLV is $80,000.

4 Cost of quality

A fourth metric to measure your engineering team's financial performance is the cost of quality (COQ). This metric shows how much money your team spends or saves on ensuring and improving the quality of your products and services. It can help you monitor and reduce your team's quality-related costs, such as prevention costs, appraisal costs, internal failure costs, and external failure costs. To calculate COQ, you add up all the costs associated with quality activities and issues in your team. For example, if your team spends $100,000 on quality training, $50,000 on quality audits, $75,000 on rework, and $25,000 on warranty claims, your COQ is $250,000.

5 Value stream mapping

A fifth method to measure your engineering team's financial performance is to use value stream mapping (VSM). This method involves creating a visual representation of your team's processes, activities, and flows, and identifying the value-added and non-value-added steps in each process. It can help you analyze and improve your team's efficiency, effectiveness, and waste reduction, and quantify the financial benefits of your team's improvements. To use VSM, you need to collect data on your team's inputs, outputs, resources, cycle times, inventory, defects, and costs, and use a VSM tool or template to map your team's current and future state.

6 Balanced scorecard

A sixth method to measure your engineering team's financial performance is to use a balanced scorecard (BSC). This method involves defining and tracking a set of key performance indicators (KPIs) that reflect your team's strategic objectives and goals, and aligning them with four perspectives: financial, customer, internal process, and learning and growth. It can help you communicate and measure your team's performance across multiple dimensions, and balance your team's short-term and long-term results. To use BSC, you need to establish your team's vision, mission, and strategy, and select and monitor the relevant KPIs for each perspective.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?