Sometimes dollars alone on the income statement are hard to get a handle on. 

Suppose over several years sales have grown from $10 million to $50 million.  However, would the sales growth be the best benchmark for looking at expenses?  Should production or service labor have grown by 500% during that time period?

Here are a few reasons why a multiple of 5 might not be the best way to look at expenses:

• Prices may have increased over time.  If prices have doubled, and everything else remained the same, then unit volume would only have had grow 2.5 times to reach 5 times growth.
• New products could have been added that carried very different pricing.
• Prices might have fallen in general, so the company would have had to work harder to have achieved that sales growth.
• Some products may decline in price as they get more mature.

In other words, sales dollar growth might not be indicative of how much more production was needed to produce the inventory or service needed for the higher level of revenues.  There might be a better metric that reflects the change in units produced.

The key can be coming up with a common unit of measure.

When I was CFO at a pharmaceutical I walked into that very issue.  Their profit and loss reporting showed percentage of sales information.  That was OK to have as one perspective, but it did not really capture the essence of the business.

Fortunately, I found a common denominator that we could use

   - it was the number of tablets or capsules that we had produced.  Using that as a unit of measure, I showed that our production costs were $13 per thousand and our revenues during the first year I was there ran $17 per thousand.  Going forward, we were able to use the $13 per thousand as a benchmark on our overall productivity.  As we introduced new products, we watched our revenues per thousand soar, sometimes generating close to $100 per thousand.

The unit of measure gave us a very different lens to look at the business.  I added this to our income statements and other supporting reports in our monthly financial package and budgets.

Later at a couple food processing clients, I did a similar thing- there the unit of measure was pounds produced.  At a client in the temporary help business, it was consultant hours.

Is there a unit of measure of combination of measures you could use in your business?  It could make your numbers much easier to get a handle on and bring a sharper lens to see your results.