Measuring Success in Business

A company's success is often associated with its sales revenues and profits. However, financial results are not the only indicators of business performance. Companies also use non-financial metrics to determine how successful they are. Read on for a look at how both types of metrics are used to measure a business's success.

What are success metrics in business?

Before measuring a company's success, we must learn why a company exists in the first place. In other words, find out its aims and objectives.

A business is considered successful when it achieves its aim and objectives.

This is true for both non-profit and profit firms. In for-profit firms, the objectives are typically geared towards financial results, whereas non-profit firms focus on social value. A non-profit firm can be considered successful even if it doesn't generate profits for the shareholders.

Since aims are relatively vague and broad, we tend to use objectives as success metrics for a business. See below for common objectives in measuring business:

Fig. 1 - Objectives to measure business success

Why is measuring business success important?

Success metrics give a picture of your business performance, which allows you to improve overall results as well as future performance.

For example, by measuring the progress of a business goal, you can know if your business is heading in the right direction and make changes when things go off track.

Financial metrics such as profit, sales revenue, and market share also provide potential investors with a snapshot of your business conditions and help them to decide whether to invest in your business or not.

In some cases, success metrics can motivate workers to work harder when they see their work bring positive results to the company. It is also important for employees to learn how success is measured, as metrics will help them to understand how their role impacts the overall result and put more effort into their work.

Finally, measuring financial performance can help you maintain a positive cash flow and avoid business failure.

Measuring success in business and examples.

As mentioned before, the way to assess your business's success is to weigh your performance against your objectives.

Objectives provide a guideline for your business performance. Based on business objectives, you plan and measure business progress as well as make changes when things get off track.

You can set many objectives to achieve the desired outcome.

For example:

• To improve customer services, you can set objectives to shorten the response time, increase the customer retention rate, or reduce customer complaints.

• To increase sales revenues, the objectives may be finding new customer groups, entering new markets, or improving customer satisfaction.

Business success based on objectives can be measured through financial metrics and non-financial metrics:

Fig. 2 - Measuring business success

Financial metrics

Financial metrics are measures of your company's financial performance. They can be found in financial statements, which include:

• The income statement - a statement of your business profitability during a given period.

• The balance sheet - a statement of your company’s assets (what you own) and liabilities (what you owe to others)

• The cash flow statement - a statement showing the amount of cash flowing in and out of your business.

Some important financial metrics include:

Sales revenue - the income received by the company by selling goods and services. Sales revenue is often listed on the top line of the income statement. By comparing sales revenue over the years, companies can measure their business growth.

Market share - means the sales of the company measured as the percentage of the total sales in an industry. A business will try to increase its market share over time. A higher market share will gain the company a competitive advantage, such as lower product prices and brand reputation.

Profit - the company's financial gain after deducting expenses. A higher profit margin means that the company has more money to cover its purchases and daily operations, which reflects an overall healthy financial condition.

Non-financial metrics

Non-financial metrics are measures of business performance that can not be expressed in monetary units. Some examples of non-financial metrics are:

Customer satisfaction - the measure of how satisfied customers are with your business. To improve customer satisfaction, you need to pay attention to customer feedback, then use the collected data to improve your products and services. Common tools to collect customer feedback include polls, services, and email newsletters.

The number of customers - reflects your business's ability can draw in new customers. If your business has a hard time attracting new customers, there's a sign that something needs to be changed, for example, a marketing strategy or product features. The best way to keep track of new customers coming into your business is to build a customer email list.

Employee satisfaction - the measurement of your employees’ contentment with their jobs. The more satisfied the employee is with your business, the higher their productivity level and the company's output. To improve employee satisfaction, your company can implement an open and social culture to encourage employees to share their views and interests.

Measuring success is very important, as it allows a business to improve its performance and make changes when things go off track. Business success can be measured by both financial and non-financial metrics. Financial metrics will focus on the financial results of the company whereas non-financial metrics are associated with the social aspects of the business.