What is Your Velocity of Money?

The velocity of money (VM) measures the number of times the average unit of currency is used to purchase goods and services within a given time period. The concept relates the size of economic activity to a given money supply. Typically, VM is applied to large economic .. Continue

What is Your Velocity of Money?

Industry Trends & Insights

Published on
Written by
John Wrona

The velocity of money (VM) measures the number of times the average unit of currency is used to purchase goods and services within a given time period. The concept relates the size of economic activity to a given money supply. Typically, VM is applied to large economic environments, such as a whole country, and is one of the variables used to determine the rate of inflation.

  • The velocity of money formula is shown as VM = PQ / M. As such, VM is the velocity of money, PQ denotes the GDP and M is the supply of money.

Let’s focus on M, the supply of money. For most, if not all cloud resellers, there is a finite supply of money in their business. Last time I checked, we do not all have the ability to print money and it “doesn’t grow on trees” as our parents reminded us.

So, the supply of money is directly related to a business’ initial investment plus cash flow, less the cost of doing business. Typically, a reseller’s cost of projects (revenue) is rarely a linear formula, especially if your business is heavy on professional implementation services, which is typically more profitable.

The cost of resources (e.g., implementation engineers) to several simultaneous projects (sales revenue) is not a constant. Depending on your technical talent and efficiencies, the more simultaneous projects handled by a set number of engineers, the better your profitability will be. 

For example, if a medium-size cloud reseller has four cloud engineers and two architects dedicated to implementation projects (hypothetical, as most resellers spread their talent over presales, implementation and post-sales support), these six resources may handle 10 simultaneous projects.  So, what happens when your sales team books the 11th, 12th and 13th orders? Should you tell the customer to wait? Stretch your already overburdened resources further? Ask for more time? 

All of these options have significant risk, not to mention the obvious poor customer experience. At a minimum, it will lead to frustrated employees, as well as technical resources being overworked and salespeople having to wait for projects to be completed so they can get paid. At worst, it risks the customer taking their business elsewhere to meet their time expectations.

Hiring new resources can be time-consuming, and new associates will have an inevitable ramp-up period. Additional headcount impacts operating expenses, and any hiring would be done with the hope that the trend of increased project count continues. (But what if one of your sales associates leave?)

So, the secret to maximizing your VM is to get just the right type and number of projects for which your technical resources excel, i.e., projects your firm can complete with the same operating expenses. The more projects you can complete with the same cost of resources, the better your VM is.

Let’s think of it another way: The ideal scenario for a server at a restaurant to maximize their tips (profitability) is to turn over their tables as many times as possible in a given time period while still providing good service. In this case, the VM is both the table and the time. Profit comes down to the frequency of transactions.

Service industry experts suggest the following for table turnover:

  • Divide the number of parties served by the number of tables to calculate the table turnover rate. For example, if you have five tables in your restaurant and you serve 20 parties over the lunch hour, then your table turnover rate is four turns-per-table during the lunch hour.

Table turnover can vary wildly and depends on several variables. What are you cooking? How long does it take to get your food out of the kitchen? Do you sell appetizers, desserts and/or liquor? How smooth is your operation? Do you have a cashier or do servers cash out your customers? The list goes on.

The short answer: During peak business hours, you should expect tables to turn over every 45 to 90 minutes.

Per an anonymous server & Maître d’:

"Here at a reasonably nice place we allot 90 minutes for a two-top (slang for number of guests), 120 minutes for a four-top, and 150 minutes for a six-top or eight-top. Larger parties often have limited or set menus, which enable us to make a better estimate of how long their dining experience will take, as well as helping us get their food out in a timely manner. Every time we reseat a table, this is called a ‘turn.’ Normal dinner service consists of two main turns of reservations, with us trying to fit in walk-ins wherever we can.” 

So, their average is three turns for one table. 

Now, let’s apply this example to your cloud reseller business. In an era of increased customer demand for cloud infrastructure, how many projects can you turn over—with your existing service delivery team—without delaying or deferring your customers’ projects?

What if you could increase that number of transactions without adding technical resources, thereby, increasing your VM?

One solution: Consider finding a trustworthy, reliable and robust partner to provide the technical resources that address your volume of projects and increase your VM.

Next time, we can address the efficient and effective use of your talented and expensive resources. (Hint: Don’t have your level-four talent doing level-one work.)

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