You’ve been running your business for a few years now, and would love to know if you’re doing a great job managing your business. As such, you need to know how to measure your business performance.
Recent research reveals that only 33% of startups make it past the first ten years in business.
This shows that most startups never scale through the first few years in business.
One way to know your startup’s chances of survival is by constantly measuring your business performance.
However, that’s just one of the benefits of measuring your business performance.
Below are some of the reasons why it’s important to track your business performance.
4 Salient Benefits Of Measuring Business Performance In Business
It Reveals The Specific Areas You Need To Improve
Measuring your business can reveal the strengths, weaknesses, and threats facing your business.
It can tell you what you’re doing right and top-performing areas in your business.
Likewise, tracking your business performance can also reveal the mistakes you’re making and potential threats to your business so that you can tackle them immediately.
It can also reveal opportunities for growth in your business.
However, when you fail to assess your business, issues could easily slide past you and cause much more problems later on in your business.
It Helps You Stay On Track With Your Business Goals
Sometimes it’s possible to neglect some important aspects of your business goals.
However, reviewing your business performance will help you identify the goals you’ve achieved.
This process could also highlight those goals you’ve neglected, thereby putting you back on track with your business goals.
It Helps You Make Business Decisions/Plans/Strategies
Analyzing your business performance can also guide you when making business decisions.
Based on your analysis, you can decide what aspects of your business are worth investing more resources on.
Likewise, it can also help you decide on the best strategies for tackling certain problems within your business.
Overall, it can help you make smart business decisions and minimize errors.
It Helps You Improve Efficiency & Productivity Within Your Organization
Measuring your business performance can also help you improve efficiency and productivity in your business.
Firstly, it can help you tweak business processes to actualize your goals.
Likewise, it can also help your employees understand the business objectives and work efficiently towards accomplishing them.
Thus improving efficiency and productivity in your business.
Above all, measuring your business performance is necessary to help you know how best to run your business for maximum profitability.
However, the entire process can only be effective if you measure your business performance against specific key performance indicators KPIs.
What are these KPIs?
Find out below.
Important Key Performance Indicators For Measuring Business Performance
For clarity, KPIs are specific and measurable metrics that measure performance in relation to specific objectives or timelines.
In business parlance, KPIs are specific, quantifiable metrics that reveal the business’s overall performance in relation to its objectives and trends in its industry.
There are several important KPIs that can help you monitor your business.
The right one for you will depend on the nature of your business.
More so, focusing on all the KPIs may not be an effective approach.
So here are some of the most important KPIs for measuring business performance.
These are metrics that help you to keep track of your business finances.
Specifically, it helps you check for profitability, solvency, liquidity, and other financial-related issues in business.
Overall, financial KPIs will help you evaluate how your business is performing financially and adjusts your business goals accordingly.
These metrics focus specifically on business activities like customer acquisition, customer retention, and customer satisfaction.
Specifically, it focuses on the efforts pulled toward customer acquisition (Customer Acquisition Costs) and customer patronage (Customer Lifetime Value).
Customer acquisition cost measures how much the business spends on sales and marketing to acquire a new customer.
On the other hand, customer lifetime value projects how much a customer ought to spend for the entire period they do business with you.
Analyzing these two metrics can show you how well your marketing efforts are converting.
Likewise, things like customer churn rate and customer retention can also help you measure how excellent your customer service is.
Thus, highlighting the areas you need to do to boost customer loyalty/retention.
This metric takes a more holistic approach to measuring the general performance of your business processes.
It covers all aspects from human resources to marketing, sales, financial, production, and other related activities.
Monitoring operational KPI includes looking into the following;
- Sales; Lead conversion,
- Marketing; CPA & CPC
- Human resources; Over time, the Absenteeism rate, Project Deadlines, etc.
- Production; Production deadline
- Among other things.
In conclusion, analyzing the operational KPIs will give you insight into the general well-being of your business and areas you need to modify.
Now you know the important KPIs required to measure your business performance.
So the next question should be, how do you measure performance?
\What To Do To Measure Business Performance
Here are the recommended steps to take.
1. Review Set Business Goals
The first step to measuring business performance is to review your business goals.
This will help you identify the areas of your business you’ve been putting efforts into and what you’ve achieved so far.
It will also give you a perspective of where to focus your efforts as you measure your performance.
2. Develop KPIs
As we’ve seen earlier, KPIs are unique to businesses and industries.
Hence, you’ll need to develop KPIs that are unique to your business goals.
Certainly, you can take a cue from other businesses within your niche to know what metrics to work with.
Likewise, the KPIs need to be appropriate so you can get accurate data to work with.
To help you develop effective KPIs, follow these simple rules;
Have KPIs that target specific aspects of the business. e.g., Financial KPIs to measure your business finances or Marketing KPIs to measure your marketing efforts.
This will make it easy to determine where you need to improve in your business.
Use Quantifiable Metrics
The best practice is to work with measurable metrics.
For instance, you can measure lead generation activities by the number of new clients/customers.
The KPIs Should Be Based On Attainable Benchmarks
Whatever metrics you intend to use to measure your business performance should be practically achievable within a realistic timeline.
You can judge whether or not a KPI is attainable if other businesses within your industry have reached and exceeded the benchmark for that specific KPI.
The KPIs Should Be Related To Your Business Goals & Processes
Working with just any KPI won’t be effective.
The KPIs need to be directly connected to your business activities and the goals you want to achieve.
Have Specific Timelines For Expected Results
You should also set clear and realistic timelines for when you expect to see results for your efforts.
For instance, The Business expects to see a 15% growth rate in its inbound marketing efforts over the next 90 days.
Lastly and most importantly, the KPIs should be explainable and understandable.
You should be able to explain the KPIs to the team.
They should easily understand how it relates to the business objectives.
That’s the only way you all can work towards achieving your business goals.
3. Measure Performance Using The KPIs You’ve Developed
This may be as simple as comparing your business operations over time with your goals or specific benchmarks.
For instance, measuring your marketing performance may be as simple as comparing the results of your marketing efforts with specific marketing KPIs.
Assuming you’ve used content marketing as a marketing tactic to attract new leads (business goal), your KPI would be the number of qualified leads acquired.
This way, you can tell whether or not your marketing tactic was effective.
4. Analyze Results And Decide On The Next Step Forward Based On Performance
You’ll also need to analyze the results to decide what steps to take moving forward.
The measurement process could involve checking off completed tasks on your list of goals or pipelines.
Also, it could involve using certain KPI tools to measure if there’s a significant increase in numbers in specific areas of your business.
Overall, the ultimate goal of tracking business performance is to identify the specific areas you need to improve your business performance.
Notwithstanding, here are some ways to improve your overall business performance.
General Tips For Improving Business Performance
First, Assess And Identify The Areas Your Business Needs To Improve
Aside from measuring your business using specific KPIs, there are ways of assessing your business performance.
This will help you figure out what you’re doing well (your strengths), where you’re getting it wrong ( weaknesses), the potential for growth (opportunities), and upcoming challenges (threats).
Every industry has pioneers who have set the benchmark for success that other new and existing businesses emulate.
So, measuring your performance against these businesses can point out areas where you’re lagging behind and need to improve.
In-depth research into the marketplace may reveal trends you’ve missed out on, changing customer needs that you ignored, and other valuable marketing insights.
This is one of the most effective ways to measure business performance and gather valuable ideas on how to improve.
You can gather these insights through webinars or online surveys.
In a nutshell, all of these will provide you with specific information on your business performance and suggest the areas you need to improve.
Set Clear Goals You Want To Achieve Based On Your Assessment
Ideally, your assessment will reveal areas you need to improve on, thereby giving you a new set of goals to work on.
Assuming you’ve identified poor sales performance as one of the challenges in your business.
It’s not enough to say you want to achieve more sales in your business.
You need to be super-specific about your goals and have a realistic time frame for achieving the goals.
For instance, a specific goal will increase revenue by 25% in 12 months.
Identify The Most Effective Strategies For Achieving Your Goals
Here you need to identify what you need to do to achieve your goals.
You could outline all the specific problems you’ve identified from your initial assessment.
Next, think of the best possible ways to solve the problems.
For instance, you’ve identified low employee engagement leading to a lack of productivity in your business.
You need to think of the best strategies to boost employee morale.
Overall, you should identify who and what will help you actualize your goals.
Develop An Implementation Plan That Will Help You Measure Your Business Performance Effectively
Here it’s time to turn your goals into actionable steps.
An implementation plan should have a specific time frame for execution.
It should also state the specific action required, who’s required to take action, and the expected results.
It may also state the resources needed to execute the plan.
For clarity, an implementation plan to increase sales revenue by 25% in 12 months may look like this;
- Specific action required; Promote the business, create more awareness, and attract new leads.
- Who’s taking action; Sales team
- Expected results; Increase in sales revenue by 25%
- Timeframe for execution: 1-month planning and strategizing; 11 months implementation and analysis.
- Resources needed: Paid ads, social media, marketing insights, marketing analytics tools, sales team, etc.
Now you have a list of specific steps to follow to achieve your goals.
Implement And Measure Results
It’s time to put all your strategies to the test.
More importantly, you’ll need to measure the results of your actions against predetermined KPIs or benchmarks, as we’ve examined above.
Whatever your results show, don’t be reluctant to go back to the drawing board and restrategize if necessary.
Stay On Top Of Current Trends In Your Industry
Customers’ needs are always changing.
As such, you need to be familiar with these changing needs and how best to satisfy them if you want to remain relevant in your industry.
So, make it part of your business process to monitor the trends in your industry.
Likewise, be flexible enough to adapt to these changes.
This doesn’t mean you shouldn’t be consistent in your business and jump on every golden opportunity that comes up.
It simply means being able to update your business to match the current needs of the market while staying true to your business goals.
Keep Employees Motivated & Engaged
This is also important because your employees directly affect your business.
Precisely, engaged and motivated employees will perform better at work.
They’ll handle projects efficiently and complete tasks on time.
These will inevitably boost productivity within your organization and increase profitability.
However, imagine a scenario where employees are falling behind production timelines.
Also, most employees come late to work and rarely put in enough hours to work.
This string of events will affect productivity negatively.
So, you need to constantly boost employee morale to increase engagement and performance in your business.
You could simply use a performance-based reward system to encourage employees to put in more effort at work.
Invest In Yourself And Your Team
Every successful business relies on an efficient team to actualize its set goals.
The more efficient the team is, the higher the chances of achieving those goals.
This is why you may need to improve yourself and the team to improve your business performance.
As a business owner, you may need to invest in training courses to help you make better decisions as a leader.
Likewise, you may need to invest in training courses for your team to help them become more efficient at their various roles.
Ultimately, improving the teams’ skills will bring a rewarding ROI in terms of increased productivity and profitability in your business.
Level-Up Your Marketing
This may not necessarily mean going above your marketing budget and spending a fortune on marketing campaigns.
It could just mean identifying more smart and effective ways to approach marketing.
For instance, you could consider outsourcing your marketing tasks to competent professionals instead of spending much time trying out several marketing campaigns.
This way, you can focus your time and efforts on other important aspects of the business.
It could also mean identifying several low-cost and effective ways to promote your business, such as social media.
Again, this would help you save costs and allow you to push your financial resources into other aspects of the business.
Do A Regular Assessment Of Your Business Performance
Measuring business performance isn’t a once and for all thing.
It’s a continuous process that you’ll have to engage in as long as the business exists.
So, have a set time to take a step back, measure your progress, and re-evaluate your goals.
Conclusion On How To Measure Business Performance
Overall, measuring your business performance can tell you where your business is headed in the next few years, either for success or vice versa.
The majority of start-ups fail within the first few years.
However, you can spot common pitfalls and increase your chances of survival in business by simply measuring your business performance timely.
So use these tips mentioned above to measure and improve your business performance.