Cost per seat

Businessman touching lean six sigma button for improved manufacturing

As a consultant to the ARM industry I use several tools to help me quickly see if the company is properly aligned in many segments by asking some key questions, one of which is “what is your cost per seat” to operate?

The answer is always the same, “what’s that?” I did not invent this formula and in fact cannot remember who taught me this but it was someone at GC Services in the 1980’s during my management training.
Total cost to run the business for one month
Divided by
The number of revenue producing staff
= Cost per seat
So let’s define these two items, the total cost to run the business will include the rent, payroll, vendors and staff bonuses. Next we need to define what a revenue producing staff member is, anyone that is taking payments from a consumer is a revenue producing staff member. This includes lawyers in a law firm doing debt collections, this excludes the managers, owners, support staff, IT, compliance, paralegals and most other staff.

So lets say the monthly cost to run your small collection agency is $100K and you have a total of 32 staff and that includes 19 collectors and 2 managers (who have a monthly budget to collect over and above their management duties).

$100K in expenses / 21 revenue producing staff = $4762 per seat

So what does this tell us? The calculation will tell you how much in fee each collector must generate monthly to break even. So if this agency is working 30% contingency paper each collector must generate $16K in gross collections to pay the bills and break even each month.

So lets take this same example and add in a profit margin of 20% making the cost per seat now at $5700 per seat. That increases the gross collection to $19,200.

So by now your thinking what your cost per seat is and you wondering if it is high, in target or low. Well if your a collection agency the $5500 mark is a good number if your a law firm the number is closer to $6500. Many high volume shops can get it down to $4000 but it is hard to get below $5000 for most agencies.

So what are the key factors to lowering your number? P.O.T.T.

Process Automation




Process automation is the biggest trend in debt collection due to compliance regulations. If we can automate the process we can make it compliant 100% of the time. Technology plays a big role an process automation and compliance these days but we still need a large focus on staff development especially with those revenue producing staff who are also task with 100% of the call compliance.

Outsourcing can bring a lift to the bottom line and many tasks can be performed nearshore such as skip tracing, asset location, IT functions, client services, clerical, transfer agents and debt collection.

Continue to follow Lighthouse in 2017 to learn more about P.O.T.T.

If you want help to lower your cost per seat contact Phillip W. Duff the CEO of Lighthouse Consulting at 904-6897-1687 or [email protected]

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