FAQ

The operational efficiency ratio is (Operating Expenses + COGS) / Net Sales. It tells you how much you spend to produce each dollar of revenue. A lower ratio means better efficiency. For example, a ratio of 0.85 means you spend 85 cents to earn a dollar.

A single ratio in isolation tells you very little. The trend shows you the story. Comparing your ratio quarter to quarter reveals whether your operation is improving or degrading, and benchmarking against peers shows whether a number is a problem or normal for your sector.

Operational efficiency is the ratio you calculate quarterly. A snapshot of where you stand. Operational excellence is the routine practice of measuring and acting on improvements monthly. Efficiency tells you the state. Excellence is the discipline that changes where you're headed.