How to pick the metrics that matter for an industry: what the company prices, what constrains it, and the syllabus's KPI lists for airlines, autos, banks, consumer goods, IT services, media, retail and telecom.
12 min read workbook 6.7chapter worth 8 marks13-question quiz below
ExamMatch industry to KPI: passenger-km and load factor for airlines, realisations and utilisation for autos, NIM, CAR, NPA and CASA for banks, FTEs, bench, attrition and million-dollar customers for IT, TRPs and ad realisation for media, same-store sales for retail, ARPU and churn for telecom. Also the three constraint categories and the Starbucks unit-of-pricing point.
Why one metric does not fit all
Studying an industry means focusing on its key performance indicators, and those vary. Revenue per employee is very useful for a service provider such as a BPO, because the industry is labour driven and billing is generally based on the headcount assigned to a contract; the same metric is far less valuable for capital-intensive manufacturing. Analysts are usually guided by the companies themselves: annual reports and management discussions show what the players treat as KPIs. Two further guides help.
ConceptUnit of pricing
What does the company treat as the unit when it prices? For manufacturers it is simply the number of goods sold. For services it can be subtle: a café like Starbucks appears to price by quantity of beverage, but in substance its pricing is driven by how much it expects to earn from one patron.
ConceptKey constraining factors
Constraints fall into three categories: demand-side, supply-side and regulatory. They can vary within an industry and change over time. Because performance depends on how a company handles them, the KPIs should reflect them: a limited market size (a capped number of target customers) makes penetration rate the key factor; capacity constraints make capacity utilisation the metric to track; regulatory constraints suggest tracking the metrics the regulators follow.
KPIs for select industries
Airlines, transportation, logistics
Pricing is driven by the quantity of passengers or cargo carried and the distance carried, and service depends on capacity held. KPIs: passenger or cargo kilometres (a bundled metric: passengers or cargo quantity multiplied by distance travelled), price per passenger or cargo km, and capacity and utilisation or occupancy rate.
Automobiles and capital goods
Unit of pricing is quantity sold; the key internal constraint is capacity. KPIs: volume and volume growth, average realisations and their growth, capacity and capacity utilisation rate.
Commercial banks and NBFCs
Unit of pricing is the loan value and the price is the interest rate; the business is lending and recovering with a healthy margin above the cost of funds. Constraints: deposits, regulatory capital and mandated liquid assets, and externally the flow of liquidity. KPIs: net interest margin, capital adequacy ratios, NPA ratio, growth in deposits and loans, cash reserve ratio and statutory liquidity ratio, CASA ratio. Because funding cost tracks central bank policy rates, those must be tracked too.
Consumer goods (staples and discretionary)
Unit of pricing is quantity sold. KPIs: volume and its growth, average price and its growth; in consumer durables capacity can bind during high growth, so track capacity and utilisation as well.
IT services, BPO, KPO
Pricing is by headcount assigned per project per month, the full-time equivalent (FTE) per month. The key constraint is workforce availability, abundant in India but tight in high-growth periods; realisations swing with foreign currency because the sector exports; some companies depend on a handful of customers, a steady stream with high concentration. KPIs: average FTEs billed, average revenue per FTE, bench strength (spare capacity) and attrition rates, constant currency growth rates, customer concentration ratio and the number of million-dollar customers (billed more than a million US dollars a year).
Media (print, television and radio, online)
Revenue comes from user payments and advertising, mostly advertising. The unit of pricing is space in print, airtime in television and radio, and views or clicks online. Because space and airtime are limited, growth depends on attracting a larger audience to charge advertisers more, which depends on acquiring good content at a reasonable price. KPIs: readership, viewership (target rating points, TRPs) or site visitors; average ad realisation per unit; content acquisition cost.
Retail
Organised retailers sell many products with different units of pricing and, being traders, can shift what they sell with demand, so the unit of pricing matters less. Growth depends on expanding the store network in localities that generate healthy sales. KPIs: number of stores and same-store sales growth.
Telecommunication and internet service providers
Billing moved from calls, messages and data used to a fixed monthly rental, but analytically the subscriber is the unit of pricing; companies grow the base and upsell to it. The biggest constraint is limited market size, since subscribers are capped by the population served, and each provider must win and retain customers against competition. KPIs: average revenue per user (ARPU), subscriber churn rate, cost of subscriber acquisition, market share.
Exam trapSame words, different industries
Capacity utilisation appears for airlines (occupancy), autos, capital goods and consumer durables, but not for retail or telecom. Growth in deposits belongs to banks, growth in stores to retail, growth in subscribers to telecom. Questions pair a metric with the wrong industry to see whether you have the map.
Take these into the exam
KPIs differ by industry: revenue per employee suits a labour-driven BPO billed on headcount but says little about capital-intensive manufacturing. Companies' annual reports and management discussion reveal what an industry treats as its KPIs.
Two further guides: the unit of pricing (simple for manufacturers, the goods sold; subtle for services, where Starbucks prices on expected earnings per patron rather than beverage quantity) and the key constraining factors, which are demand-side, supply-side or regulatory. Limited market size points to penetration rate; capacity limits point to utilisation; regulatory limits point to the regulator's own metrics.
Airlines: passenger or cargo km, price per km, capacity and utilisation or occupancy. Autos and capital goods: volume growth, average realisations, capacity utilisation. Banks and NBFCs: net interest margin, capital adequacy, NPA ratio, deposit and loan growth, CRR and SLR, CASA ratio, plus policy rates.
Consumer goods: volume and price growth, plus capacity in durables. IT and BPO: FTEs billed, revenue per FTE, bench strength and attrition, constant currency growth, customer concentration and million-dollar customers. Media: readership, viewership TRPs or site visitors, ad realisation per unit, content acquisition cost. Retail: store count and same-store sales growth. Telecom: ARPU, churn, subscriber acquisition cost, market share.
Check yourself
Answer without looking back. Misses go to your mistake notebook and come back in revision.
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