This post is written by Debbie Watkins, bKash Resident Advisor in Dhaka, Bangladesh.
One part of the Alternative Delivery Channel (ADC) financial modelling equation is paying commission to agents. When considering the share of revenue to give to agents, don’t just think about the amount they receive, but how much of their precious time they have to dedicate in order to get it. I call this the profit-per-transaction minute (PPTM) ratio, and it’s calculated in much the same way as the dollar-per-wear equation I use to justify buying a really expensive pair of shoes (but enough about that).
Here’s roughly how it works. In order to motivate an agent, they need to be offered a good ROI (return on investment), and a good ROT (return on time) – as this is how their existing business works. A small shopkeeper needs to do two things at a basic level in order to make profit: invest in stock, and invest in the time required to sell that stock. So, let’s say he’s an orange seller:
- He buys 100 kg of oranges for $50 = $0.50 per kg (comprising roughly 10 oranges)
- He sells them for $0.60 per kg = $0.10 markup per kg (or 20%)
- The average transaction (weighing the oranges, putting them in a bag, taking the money) takes 1 minute
- The average weight he sells per transaction is 2 kg
- Therefore his PPTM is $0.20
This equation changes drastically if the markup remains the same but his average sale is only a single orange – the PPTM goes right down to $0.01 (so it takes him 20 times as long to sell the same amount and make the same profit as before).
This can be one way to guide that “how do I select agents?” discussion. Here’s an example, comparing a cash-in transaction to our orange seller’s PPTM. Continue reading