How can you tell if your business is performing well or not? What standards of comparison inform your decisions? Every day, entrepreneurs are either celebrated because of how well their businesses are doing or affected by how poorly their businesses perform.
Good or bad, their performances are based on how well they're able to manage their businesses. This article is meant to provide entrepreneurs with the necessary information they need to know about business performance, the benefits they get from doing so, and how they can measure their business's performance.
This knowledge will help you make improvements that will help your business succeed.
Understanding Business Performance
As an entrepreneur makes his journey through the marketplace, there will come a time when the question of how well your business is performing is asked.Before providing the answer, it's important that we establish the concept of "business performance." So, what then is business performance? Business performance refers to the extent to which a company's operations achieve its set goals. In other words, it's how much a company can make use of its resources to achieve its set goals.
Mind you, these goals are vast and may include finances, sustainability, competitiveness, customer satisfaction, operational effeciency, etc. Having a better understanding of business performance provides entrepreneurs with insights into how much and how well their businesses are faring.
This will, in turn, inform the decisions they make. On most occasions, companies set key metrics by which they measure their performance.
Entrepreneurs are able to identify areas they need to improve and what kind of strategies they must implement to help them achieve their set goals when they analyze their performances.
With this basic understanding of what business performance is, let's discuss how you can measure it and make it work for you.
How to Measure Business Performance
If you know what business performance is and you don't know how to measure it, it can be compared to having a fishing line but no idea what to do with it. So, how can entrepreneurs measure their business performance? Let's consider four ways:1. Set Key Performance Indicators (KPIs)
How can you tell if your business is doing well or not? Before you could even begin to ascertain whether or not your business is performing well, you needed to set up key metrics. These metrics, called KPIs, are more like standards that determine how well or poorly your business is performing.These key metrics should align with the goals you have set for your business. Fact is that businesses across different industries have varying KPIs depending on what their objectives are. Although this is true, there are some general key metrics that entrepreneurs set for their businesses.
These include financial metrics (revenue, profit margin, cost optimization), customer satisfaction, operational efficiency (productivity, efficiency ratios), market share, market presence, employee performance, etc.
Also, the chosen KPIs must be specific, measurable, and realistic for your business goals and objectives if you want to achieve success.
2. Set Targets
Establishing baseline values for the varying KPIs that are relevant to your business is what it means to set targets.When setting targets, which will be standard values by which you will measure your business's performance, you'll have to ensure they are based on historical performance or standards within the industry.
What this helps you achieve is that you'll be realistic with your targets. Just as your KPIs align with your goals, your set targets must be realistic enough to be achieved.
So, for instance, you're a Nigerian entrepreneur who runs a digital agency. One of your KPIs will be your ROI. You'll have to set a realistic baseline that's not alien to what's obtainable in the industry.
You can increase the standards a little above what's attainable, but being too unrealistic may have its own negatives, so set realistic ones.
3. Make use of Performance Tracking Systems
Using automated systems that are able to help you track your performance will make things easier for you.Whether you're tracking your finances through different financial analytics or customer satisfaction with CRM, it's all for the best.
You can get automated systems that can help you monitor the progress of your business and apply them to the varying KPIs that align with your goals.
4. Always Compare Business Performance with your KPIs
You have set your KPIs, you've set your targets, and you've automated the measuring processes with systems.The next thing you should do is actively and consistently compare the data. You need to compare the performance of your business with the KPI standards that you have set.
By comparing them, you can then identify areas that need attention and make the necessary improvements that's needed there. In doing so, you'll reap the multiple benefits that come with it.
Benefits of Measuring Business Performance as an Entrepreneur
As an entrepreneur, keeping a close eye on the performance of your business comes with huge benefits for you. Let's consider some of the benefits:1. Better Decision-Making
The more you measure the performance of your business, the more informed your decision will be. This is quite simple. For instance, you run a shoe-making business.One of your key metrics to measure your performance will be customer satisfaction and feedback. If their feedback is positive, then you know your business is doing well; otherwise, your business needs a double check.
The feedback from your customers will inform you of what you need to do or change to make a better experience for them. By making a routine check on how your business is faring, your decisions will be influenced in the right direction.
2. Strategic Goal-Setting
One of the benefits of measuring business performance is that it will help you strategically set goals. Sometimes, entrepreneurs, out of zeal or being too positive—which is not wrong—set unrealistic goals that may end up failing.But by measuring the performance of your business, it becomes easy for you to set very practical, realistic, and strategic goals with a high potential for success.
3. Optimization of Resources
Resources are very important to an entrepreneur, just as we need water as humans to survive. Without a thorough analysis as to where to put those resources for maximum returns, there's a high probability that the resources will be wasted.To avoid such mistakes as an entrepreneur, you need to measure your business performance. Through this act, you can identify the areas of your business with the highest profitability-to-cost ratio and then feed those areas with more resources.
A common example will be a company that measured their performance at the end of the first quarter of the year and then realized how much they'd profited because of the amount they spent on advertising.
As a result, the company decided to channel their resources into advertising and lead generation. In this way, they are optimizing their resources properly.
4. Better Chance at Competing
Businesses are able to compete with others in the market place when they know what their advantage is, the value they are bringing, and some other cascading factors.
But when a company doesn't pay attention to these things, they may not stand a chance against their competition.
So by routinely measuring the performance of their businesses, entrepreneurs will make the necessary adjustments to the products or services they offer, which in turn will give them a better chance at competing in the market.
5. Creates Room for Improvement
This is simply a by-product of consistently measuring your business's performance. When you compare your business' welfare to the key performance indicators (KPIs) that you have set, it's easy for you to spot your lapses.With this information available, you have no choice but to set strategies in place that will help you improve. As long as you measure your performance, there will always be room for improvement.
Take Apple, for example. At every point in time, they are measuring their performance, and that has always created room for them to improve consistently.
How to Improve Business Performance
One of the goals of every entrepreneur is not just to have the right tools to measure their business's performance but also to know how to improve as well. Here are 3 ways to do so:1. Conduct a Comprehensive Analysis
Conducting a comprehensive analysis of the different areas of your business, such as the KPIs, will help you know where your strengths, weaknesses, opportunities, and threats lie.The results will guide you on the next step to take towards improving. If your finances are performing less than your set targets, you need to seek out ways to increase profitability by optimizing costs, increasing revenue, etc.
2. Adapt to Market Variability
The market is a very dynamic entity, and therefore, you must be dynamic as well. You must be willing to adapt to the changes that take place in the market. Why is this necessary? It is because if you do not adjust as fast as the market does, your business will suffer for it.You must be willing to assess the competition and then make swift decisions that will help your business meet the changing needs of your customers.
3. Monitor and Adjust Strategies
To improve business performance, entrepreneurs must always monitor their strategies and be willing to make the necessary adjustments.What use is a strategy if it's not yielding the expected result? If you invested a portion of your finances into running ad campaigns and the results it's yeilding is not up to expectations, you need to make adjustments.
Such adjustments could include trying other advertising strategies with high potential for success. Doing so can change the course of your business in a positive direction.
4. Work with the Right Team
As an entrepreneur, you cannot take away the roles humans play to achieve excellence in a business. It's often said that the greatest asset and liability of a business are the people in it.When you have the right people working with you in their respective departments, all focused on achieving the goals of the company, then you have your greatest asset right there.
With the right team willing to go the extra mile to ensure that customers are satisfied, relationships are maintained, etc., your business will succeed, and any improvements that need to be made will be implemented with a high efficiency rate. This is what working with the right team can do for you.
Conclusion
As entrepreneurs, keeping up-to-date information about the performance of your business is, as a matter of fact, a very important aspect of doing business.Knowing the KPIs that align with your business goals and the means by which you measure it's performance is a key factor in your overall performance as an entrepreneur. By focusing on improving your business's performance, you're steering your business in the right direction.
Frequently Asked Questions (FAQs)
How often should I assess and review my business performance to ensure ongoing improvement?
Do it as often as you need to. Some companies carry out quarterly, biannual, and annual assessments of how their businesses are doing. The timing is dependent on the needs that arise in your business.What are the key performance indicators (KPIs) that businesses commonly use to measure their performance?
The KPIs vary with each business and industry, but the common KPIs include financial metrics (revenue, profit margin, cost optimization), customer satisfaction, operational efficiency (productivity, efficiency ratios), market share, market presence, employee performance, etc.
Tags:
Entrepreneurship