Question

Give an example of a Non-Financial Measure of Quality in an organization .Explain in writing how this non-financial measure helps management accountants improve their organization? Give actual examples as evidence of analysis.

Answer 1

An example of Non-Financial Measure of Quality in an organization is Retention & Churn

Retention is how many customers continue to buy the company's products or use its services and churn is the number of existing customers who are no longer buying the products or services. These are interrelated as:

Retention rate = 1 - Churn rate

So if a company has a yearly retention rate of 90%, it implies that 90% of its existing customers at the beginning of the year remain its customer at the end of the year as well whereas 10% stop using the company's products or services and are thus considered as 'churned'.

These are very important metrics and management accountants can monitor them to figure out the overall satisfaction level that customers are having with the company's products & services including after-sales customer experience. Even if a company keeps acquiring new customers but the churn rate of old customers is also very high, the company may end up making more losses than profits because acquiring new customers has its own associated costs whereas existing customers provide more profitability to the firm. For example, Apple is considered to have a very high retention rate of around 90% of customers using its devices which means most of the current users would prefer to buy a device from the same company again rather than going for another brand. If there is a drop in this metric, then management accountants can quickly highlight this to the management which can start investigating further to figure out what went wrong & start targeting high retention rate again with improvements in products & services.

Moreover, in addition to customers, management accountants also use this metric to measure employee retention & churn rates. These are probably as important (if not more) towards improving the organization.