Ask the CEO or CFO of any small or midsize business if there are ways they could improve their finance function, and chances are you’ll hear something like: “We run pretty lean.”
Look around the offices of the finance department, and you’ll find plenty of evidence that everyone is busy. Staffers will often tell you they’re stretched to the max to get everything done.
But activity is one thing, productivity is another. How do you gauge the effectiveness of all that activity? In other words, how do you measure the efficiency of the finance and accounting (F&A) function?
The answer comes down to four benchmarks. The best-run finance and accounting functions operate at or below 1% of revenue, collect cash faster than their peers, process invoices for a fraction of the going rate, and free their leadership to spend most of its time on strategy rather than tactical accounting.
Here are the four tried-and-true metrics to benchmark your F&A performance.
1. Finance Department Cost as a Percentage of Revenue
This critical metric measures all the human resource expenses and systems costs associated with the finance function, including allocations for items like benefits, facilities, and supplies.
The companies with the best scores on this metric achieve finance costs of 1.2 percent of revenue or less. The range of performance is wide, with world-class organizations operating at a little over half the annual cost of run-of-the-mill finance departments and with less than half the staff, according to research by The Hackett Group.
Performance varies by industry, too: in manufacturing companies and organizations with significant materials or contractor costs, finance department cost can be as low as 0.4 percent of revenue.
The bar has moved over the past decade. Among large organizations, top performers have driven finance costs down from roughly 1.5 percent of revenue ten years ago to 0.6 percent or less today, while bottom-quartile departments still spend 2 percent or more. The gap is stark: the lowest performers spend nearly four times more on finance personnel and about twice as much running the function as the leaders do.
Smaller companies naturally carry higher ratios that compress as they scale. Consero’s own benchmarking data, drawn from more than 1,000 middle-market, investor-backed companies, shows top-half performers running F&A at roughly 2 percent of revenue at $10–24M in ARR, with the ratio falling steadily as revenue grows toward 1 percent and below.
Private equity sponsors increasingly benchmark F&A spend across an entire portfolio to surface that margin. That downward trajectory matches what finance leaders expect of themselves: 68 percent say the cost of F&A as a percentage of revenue should hold flat or decline as a company grows from $10M to $200M in revenue.
Finance leaders should strive to keep their costs low, but it’s important to view this data alongside the other measures below. A low-cost, bare-bones finance operation doesn’t serve a company well if it’s ineffective, and it may not seem such a great bargain once you consider all of the indirect expenses.
For most growing companies, a finance function that costs more than 2 percent of revenue signals room to optimize through better systems, automation, or a finance partner.
2. Cost Per Vendor Invoice
This is a measure of the total monthly cost of payables personnel, allocation of systems maintenance associated with payables processing (such as ERP and workflow tools), costs of payments, and material expenses like checks, stamps, and envelopes.
Companies that perform poorly on this metric can find themselves paying anything from $10 to $15 per invoice, and some may range as high as $20. In contrast, the top performers hold down per-invoice costs to around $5.
A cost per invoice above $10 usually points to manual, paper-based payables that automation can cut by half or more.
3. Days Sales Outstanding (DSO)
DSO measures how effective finance is at collecting cash. This key indicator of the health of working capital tends to vary across different sectors of the economy, so it’s important to use industry-specific benchmarks. Alternatively, a company can compare its actual days sales outstanding to its ideal DSO — the DSO that would result if all customers paid on time per their contract terms.
The gap between your actual and ideal DSO is cash sitting on the table; closing it is one of the fastest ways finance can fund the business without new financing.
4. Forecast and Analysis Production
An informal a group of metrics that answer simple questions like: is management getting the data it needs to make informed decisions? Do executives receive a monthly forecast along with a variance analysis comparing forecast versus actual results — two reports that are pretty much table stakes for a productive finance function? How timely is the production of this information, and how much of finance leaders’ time does it consume?
While the detailed construction of this measure will depend on each company’s specific situation and practices, here’s a useful benchmark: at high-performing organizations, CFOs spend 20 percent of their time or less on compliance, reporting, and other tactical accounting issues, and 80 percent or more of their time on strategy and business analysis.
If your CFO spends most of the month producing the numbers instead of interpreting them, the finance function is operating as a cost center rather than a strategic asset.
How to Bring Your Finance Function to World-Class
Knowing where you stand is only half the exercise. Closing the gap between an average finance function and a world-class one comes down to where the money goes, and roughly 60 percent of the total cost of an F&A function is tied up in salaries and benefits.
The highest-performing teams attack that cost by replacing manual work with better systems, not by simply cutting heads. A few levers do most of the work:
- Simplify the ERP environment and reduce the number of disparate vendors and software instances, so core processes are standardized and need less manual intervention.
- Automate routine transaction processing across accounts payable, accounts receivable, expense management, and general accounting.
- Redeploy tenured talent from low-level processing to analysis, planning, and forecasting — the work that drives the business.
- Reduce budget line-item sprawl and build a more performance-driven culture across the function.
The payoff can be dramatic. Ash Noah, VP of CGMA External Relations, shared an example at the CFO Leadership Conference: Microsoft replaced a forecasting process that once took 800 people a full month, landing within 3 to 3.5 percent of actuals, with a machine-learning platform that two people now run in two days, accurate to within 1 to 1.5 percent.
Those 800 people were redeployed to customer contracts, RFPs, and profitability work. The lesson scales down to companies of any size: stop paying skilled people to do low-level work, delegate that work to software and an AI-enabled finance partner, and point your team at higher-value analysis.
The goal isn’t a leaner finance team for its own sake; it’s a finance team spending its hours on the analysis that moves EBITDA.
Frequently Asked Questions
How often should you benchmark your finance function?
At minimum once a year, tied to your annual planning cycle, and again after any event that changes the shape of the business — a funding round, an acquisition, a new ERP, or a jump in revenue tier. Benchmarks shift as you scale, so a cost ratio that looked lean at $10M in revenue can look bloated at $50M.
Which benchmarks matter most for an investor-backed company?
For private equity- and venture-backed companies, finance cost as a percentage of revenue and the speed and reliability of reporting carry the most weight, because they tie directly to EBITDA and to investor confidence in the numbers. Sponsors increasingly benchmark F&A spend across an entire portfolio to find margin that optimization can release.
How long does it take to bring an F&A function in line with these benchmarks?
Most of the savings come from systems and process changes, which typically play out over two to four quarters rather than overnight. Microsoft’s machine-learning forecasting project took two years to perfect, but a mid-market company that simplifies its ERP, automates AP and AR, and shifts work to a finance partner can usually see measurable movement within a couple of quarters.
Turn These Benchmarks Into a Stronger Finance Function
A finance function that hits these four benchmarks does more than save money — it hands your leadership team and your investors numbers they can trust, on a timeline they can count on. That’s the reason 87 percent of investor-backed finance leaders now work with a finance and accounting partner to get there. Consero’s AI-enabled Finance as a Service combines the systems, automation, and expert talent to bring your F&A function in line with world-class benchmarks and keep it there as you scale. Request a consultation to see where your finance function stands today.
