FTE Benchmarking: Finance Best Practices

Overview

In the busy world of finance we tend to evaluate performance using metrics and financial ratios. So, in this blog we will walk through the best practices for FTE benchmarking (meaning full-time equivalent), which is an important tool for measuring the efficiency of employees within the finance function (or any other function).

So, what is FTE benchmarking? There are various aspects, but in this context it is the process of comparing the number of employees in the finance function to similar sized businesses in the same industry.

Benchmarking FTE is an important tool because it allows organizations to identify areas where they may be overstaffed or understaffed. This means that organizations can then identify opportunities for improved business practices and cost savings.

Best Practices for Finance Benchmarking

Determine the appropriate benchmarking group

When benchmarking FTE levels, it is important to compare against organizations of similar size within the same industry to gain the most relevant insights. For example, a small startup would not benchmark against a large multinational corporation.

To determine the benchmarking group you should consider how much revenue the target company generates, the total number of employees, and the countries that it operates in.

Consider the scope of the finance function

FTE benchmarking should be done with a clear understanding of the scope of the finance function. This is particularly important for some activities such as payroll, as companies typically perform payroll out of Finance, HR, or both functions.  

Use a consistent methodology

When benchmarking FTE, it is important to use a consistent methodology across all firms being compared. This means using the same definitions and assumptions for calculating FTE levels, such as the number of hours worked per week, or any adjustments for part-time or temporary employees.

This also ties in to the scope of the finance function, where you should always try to compare finance functions that are as similar as possible.

Consider qualitative factors

While FTE benchmarking is largely a quantitative exercise using financial analysis, it is also important to consider qualitative factors such as the employee morale and culture. These factors may not be captured by FTE levels alone, but they are important to consider when making staffing decisions.

Use FTE benchmarking as part of a broader analysis

In addition to qualitative factors, FTE benchmarking should not be done in isolation, but as part of a broader analysis of the finance function. This includes considering factors such as the organization's strategic priorities, the competitive landscape, and the regulatory environment.

Now with your understanding of the best practices for finance benchmarking FTE, let's move on to find out where to source external benchmarks.

Where to Find FTE Financial Ratios?

Many businesses struggle to source finance benchmarking ratios. Especially when they try to drill down and find companies of a similar size in the same industry or sector. The easiest way is to source this data from finance benchmarking providers such as APQC, Gartner, or CompanySights.

Start your search here with CompanySights to access over 100,000 data points - Guaranteed to find relevant finance benchmarking FTE metrics.

Conclusion

FTE benchmarking is an important tool to measure performance within the finance function of a business. It is typically used by management teams, consultants, and investors to set targets for business goals, strategic management, or be part of an investment strategy.

The information gained from benchmarking the finance function to certain best practices can help management teams assess opportunities for improved business practices and cost savings.

With an economic downturn on the horizon, companies continuously seek to manage their performance and costs, especially if they are experiencing poor financial performance. By using FTE benchmarks any business can start the journey to improved future performance today.