There are many ways to evaluate the success of a branch office location and one of the most popular is Desk Cost. 

What this simply means is to start with your top line or gross revenue.  This is usually defined as all commission revenue that has been generated by that branch.  Now subtract any referral fees paid to other companies or royalties paid to franchises (if applicable); then subtract the commissions paid to sales associates; and finally subtract all the expenses that relate to that particular location. The expenses will include all direct expenses (fixed and variable) and in multi-branch operations should also include the portion of corporate overhead assessed to that location.

You will end up with a net profit before taxes.  This number also represents you ROR or return on revenue.  To calculate this percentage, simply divde the net profit number into the gross revenue or top line number. Depending on the health of the branch this number could be a negative percentage meaning the branch is not profitable at all. More commonly, you will see percentages that range from 3% to 10% and certainly there are examples of branch locations that are significantly more profitable with RORs as high as 18 or 20%. 

Business owners should look carefully at this number and determine what is acceptable.  Put another way, if your ROR was only 3% last year, is that a satisfactory return on your capital investment and risk for being in business?  Most owners are looking for an ROR between 6% and 10%.  This justifies the risk, allows the owner to enjoy a profit on their investment, and most important, gives a cushion if (and when) the market turns down and business shrinks.

But our primary subject is Desk Cost.  How do you know what to expect each 'desk' to produce in order to manage toward profit? 

The next step would be to determine the annualized expenses.  You can simply look at the prior calendar year or you can add the last 12 months of expense to get this number.  Add to that number the dollar equivalent of the percentage return you will require of that branch location.  There is an example on the Download Form Evaluate Office on Basis of Desk Cost.  It shows an office with a gross revenue of $1.8 million.  The owner in the example wants a 10% ROR which in dollars would be $180,000. This is the profit goal.

Once you have added these two numbers (annualized expenses and profit goal) you are one step away from determining desk cost. This new number represents the projected Gross Profit (also referred to often as Company Dollar) of the branch office.  Divide this figure by the number of desks in the branch location.  Desks are defined as physical locations where producing sales associates are assigned.  They may be in private or semi-private office; they may be in cubicle; or in newer offices, they may simply be laptop stations.  You should not included non-productive desks or desks occupied by people who do not produce for the
branch.  Examples of these types of desks would be the receptionist, the office administrator, the branch manager (even if the manager is a selling manager).

On the Download Form you will see three different possibilities using the same dollar projections against different size offices. In one example, the office had 25 desks, in another 35 desks, and in the third 45 desks.  Regardless of the size of your office (2 desks to 200 desks - it doesn't matter) this formula works. So what have you learned?  This final number represents the GROSS PROFIT (or COMPANY DOLLAR) that each desk is required to produce [at a minimum] in order to insure the profitability and future success of the office.  Remember, this is the number after the sales associates have been paid, but before expenses. 

This number will help guide in making decisions about who is entitled their own desk versus who may need to share a desk because their production has not yet earned them a dedicated location in the office.  Look for a follow-up Articles addressing how to manage desk assignments, quartiling, and performance standards.

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