Three steps to turn a key performance metric into faster growth
Square Feet Per $1M in Sales is a meaningful metric for executives in the MedTech sector because it measures how effectively a manufacturing firm utilizes its facility to increase revenues and keep manufacturing costs to a minimum. This is because your manufacturing plant, whether leased or owned, is one of the most expensive assets that a medical contract manufacturing business manages. The goal should always be to direct as many sales dollars as possible into that building.
This metric is important because it is an indication of the effectiveness of a contract manufacturer’s management and their ability to generate revenues given the amount of space available to them. Also, calculating the revenue per square foot of total facility is a planning exercise that provides an indication of how far you can scale in your current space.
In the most recent Kinsella Report on Medical Contract Manufacturing, our research found that an average of 2,006 square feet per $1M in sales was required. For example, if your medical contract manufacturing business generates $10M in annual revenues, this formula indicates the space required to be around 20,000. Ideally, a MedTech company works to achieve the lowest Square Feet Per $1M of sales because it is a strong indication of revenue growth and efficiency.
As experienced medical contract manufacturers know, there are several ways in which to increase the Sales Per Square Foot in your manufacturing plant:
Step 1: Improving the lay-out of your manufacturing space. A poor sales per square foot number could be due to a space not optimally utilized. Improving the lay-out and removing idle or obsolete equipment will increase the sales per square foot potential of your company.
Step 2: Investing in state-of-the-art machinery. As medical devices become more complex, investment in more accurate, faster and efficient processing machinery serves as both a revenue and cost driver.
Step 3: Investing in technically trained personnel. Highly skilled engineers and operators provide increased capabilities to drive revenues at medical contract manufacturers. Experienced operators know how to make these machines generate as many parts as possible in the shortest amount of time.
The Square Feet Per $1M in Sales metric is best understood in comparison with competitors. For example, if your business is utilizing 1800 square feet per $1M in sales and an acquisition target’s metric is 2600 square feet per $1M, there is an opportunity to manage facility costs downward during the integration phase after close.
Kinsella Group, Inc is an investment bank focused exclusively on the MedTech and medical contract manufacturing markets. Kinsella Group has been representing buyers and sellers in this space for over 20 years, working to exceed desired outcomes. For more information, please contact Bob Kinsella at robert.kinsella@kinsellagroup.com or by calling (312)229-1357.
