Research & Development Expense as a Percentage of Total Revenue

Research & Development Expense as a Percentage of Total Revenue

KPI Details

Research & Development (R&D) Expense as a Percentage of Total Revenue measures the cost incurred by the company's R&D Department relative to total revenue generated by the company over the same time period. R&D Department expense should consume a relatively small portion of the company's assets, particularly in industries such as banking, where new product development is not as essential to revenue growth. On the other end of that spectrum, pharmaceutical companies and software companies will typically have higher R&D spending to keep a competitive advantage. In any case, relatively high R&D costs may be related to high work cycle times, overstaffing and/or general inefficiencies within R&D processes (e.g., idea generation, market research, product approval, product testing, etc.).

KPI Definition

The total amount of research and development-related expense incurred divided by the total revenue earned by the company over the same period of time, as a percentage.

KPI Best Practices

• Hold regular meetings each week to discuss job roles and minimize duplicate work
• Perform industry and market research to discover/estimate how much competitors are spending on R&D
• Outsource R&D activities when possible to reduce R&D overhead costs

KPI Calculation Instructions Research & Development Expense as a Percentage of Total Revenue?

Two values are used to calculate this KPI: (1) the R&D expense that is incurred by the company, and (2) the total revenue generated by the company during the same measurement period. R&D expenses focus on labor (wages, salaries, benefits, etc.), overhead (occupancy, utilities, supplies, etc.) and technology costs related to idea generation, product testing, product design, etc. Only include non-interest income in the denominator of this calculation.

KPI Formula :

(Research & Development Expense / Total Revenue) * 100