Increasing revenue and profits is an objective for any business, but the only way to ensure your business meets this goal is to understand what is and isn’t working. After all, improving your sales is not a one-time task. It requires continuous effort and happens over an extended period of time. By tracking business performance and key performance indicators, businesses can optimize their operations and gather quantitative data to enhance decision making. So, how exactly do you measure your business’s performance? Here are a few tried and tested methods for measuring business performance at your company.
1. Set Goals
The first step in measuring performance is to know what goals you are trying to achieve. Goals are different for every business, so yours should be specific to your needs. For example, are you looking to attract new customers or are you focusing on retaining existing ones? Are you working to increase sales or are you trying to boost your profit margins? Set clear goals and make them known throughout your entire department. You must have goals in place so you have something to measure.
2. Develop Key Performance Indicators (KPI’s)
Key performance indicators are statistics that a business owner can track in order to evaluate their company’s performance. Standard KPI’s include things like generated revenue, productivity levels, and output metrics. These indicators allow managers to track their progress toward a desired outcome.
3. Look at Your Business’s Financial Statements
In order to see if your business is succeeding, you need to know how much money it is generating. Obviously, money is among the most important components of running a business because if you run out of money, your business will close. Therefore, you need to keep a detailed record of your finances: what is going in and what is going out.
4. Check Customer Satisfaction
Another practical way to evaluate your business’s performance is to assess your customer satisfaction. If your customers aren’t satisfied with your business, they probably will not buy from you again in the future. You can measure customer satisfaction through surveys, emails, reviews, or even asking your customers how they feel about your business. Record this data and use it to identify what is working well and what areas need improvement.
5. Track New Customers
Knowing how many new customers you are getting is another great way to measure your company’s performance. If you still have the same 30 customers you started with, you may need to implement a new marketing strategy. Develop a client list with email addresses so you can track customers. Record how many new customers you average per month so you can measure how much your business is growing.
6. Check Employee Satisfaction
You don’t want to forget about your employees. While customers are necessary in order to grow a business, your business wouldn’t survive without employees either. Employees are essential and without them you will have a hard time running your business. It can also be extremely costly to deal with high turnover rates so take the time to survey your employees to measure how happy they are at your company. Again, use this data to determine what areas need improving.
7. Use Benchmarking
Benchmarking is the process of setting small short-term milestones to help businesses reach their larger goals. Carefully plan benchmarks and compare your actual performance with the expected benchmarks to determine if your business is on track to reach its goals.
8. Analyze Your Competitors
It can be helpful to track your competitors’ pricing, product lines, services, or competitive advantages. Tracking this information can help you see how your business compares with competitors and you can more easily pinpoint your strengths and weaknesses in order to improve performance.
9. Create a Budget
Budgets are one of the most useful performance management tools and it can help you identify your revenue vs your expenses. Keep a detailed log of all of your business expenses as well as how often they are due. For example, are they monthly expenses or once a year expenses? Next, keep track of your revenue each month and conduct a budget report at the end of month to help you see if you are on track.
10. Measure Your Profitability
Once you have created your budget, you need to look at your financial statements each month to measure your profitability. Here are the areas you will need to measure:
Gross Profit Margin- How much did you make after costs of sales have been accounted for
Operating Margin- Take into account overhead costs
Net Profit Margin- all overhead costs including tax and interest
Return on Capital Employed- How did the money you invested perform compared to other investments you could make