How Do You Measure Business Success?
Businesses are set up to fulfil a purpose, be it wealth or value generation, or fulfilment of a process or as means to an efficient transaction method. Measuring business success tells us if the business purpose is being achieved.
Businesses are not built to fail. There may be instances of existing businesses being acquired to shut down as a measure of industry rationalization. But such events are few and far spaced over an industry's timescale.
All our dreams can come true; if we have the courage to pursue them. - Walt Disney
Entrepreneurs often doubt if they have achieved success in their business. It thus becomes important to define metrics, set parameters and measure business success. Such metrics may vary by industry vertical, operating scale, and regulatory environment. Even within a common macroeconomic environment, metrics may require separate parametric configuration to evaluate success of any business, depending on target objectives, ownership structure and so on. Having established the need for customized metrics, defined and designed by industry specialists, there are a few broad parameters that may be referred to for a quick assessment of how successful a business has become.
Financial metrics
Traditionally businesses are evaluated by their financial success. Financial metrics are the most common way to measure business success. These metrics include revenue, profit, cash flow, and return on investment (ROI).
The capability of a business to generate revenue is prime, but the quality of revenue is also important. A business may be successfully generating revenue, but what's the quality of such revenue. Is it able to effectively address contribution margins? Is it being realized within a reasonable time since its accrual? Similarly, a highly profitable business may not be a very successful one. Profits may be windfall, short-term or from non-operating events, e.g., gains from sale of assets. At Formation Ventures, we consider cash flow analysis as a prime diagnostic tool to ensure the financial health of an enterprise.
Non-financial metrics
Non-financial metrics to measure business success. include customer satisfaction, employee satisfaction, and market share.
Customer satisfaction is a measure of how happy your customers are with your products or services. We prefer a wider measure to include suppliers, investors, unsolicited critics, market analysts and employees. Our marketing colleagues may seem overly obsessive with online reputation management, but with social media streaming with influencing trends, broad opinions, grudges, and often disinformation, it is important to measure success of business in terms of how talked about is the business? Oscar Wilde's quote still holds good. "The only thing worse than being talked about is not being talked about."
The right metrics for your business success
The right metrics for your business will depend on your specific goals and objectives. If your goal is to increase revenue, then you will want to focus on financial metrics like revenue and profit. If your goal is to improve customer satisfaction, then you will want to focus on non-financial metrics like customer satisfaction and employee satisfaction.
Tracking your metrics
Once you have identified the right metrics for your business, you need to track them over time. This will help you see how your business is performing and identify areas where you can improve.
There are a number of ways to track your metrics. You can use spreadsheets, project management software, or business intelligence tools. Our analysts and consultants can help you with goal setting, performance measures and using AI/BI tools to gain greater insight in your business performance.
Using your metrics
Once you have tracked your metrics for a period of time, you need to take action. If your metrics are not where you want them to be, you need to make changes to your business strategy. For example, if your revenue is not growing, you may need to increase your marketing efforts or improve your product offering. If your customer satisfaction is low, you may need to improve your customer service.
Measuring success is an ongoing process
Measuring success is an ongoing process. You need to regularly review your metrics and make changes to your business strategy as needed. By tracking your metrics and taking action, you can ensure that your business is on the right track to success.
Here are some additional tips for measuring success in your business:
Set SMART goals. Your goals should be specific, measurable, achievable, relevant, and time-bound.
Make your metrics visible. Share your metrics with your team so that everyone is aware of the goals and how they are being measured.
Track your metrics regularly. Don't just track your metrics once a year. Track them on a monthly or quarterly basis so that you can make adjustments as needed.
Analyze your metrics. Don't just track your metrics. Take the time to analyze them and see what they tell you about your business.
Use your metrics to make decisions. Use your metrics to make decisions about your business, such as where to allocate resources or how to improve your products or services.
By following these tips, you can ensure that you are measuring success in your business in a way that is effective and meaningful.
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