Selecting the wrong performance measurement tool is like trying to measure your height with scales, it gives you a number, but the number is irrelevant to what you are trying to track. There are hundreds if not thousands of ways to measure business performance, so how do you know if you are using the most suitable measurement tools for your business? You need to first look at what matters to your business and what drives your success. Once you have a good idea about what it is you are trying to achieve, then the metric will become more apparent. The following 5 tools look into essential business areas by considering either people, performance, and/or technology as key performance drivers.
Profit is key to business success and can indicate how effectively your resources are being utilised. There are several different types of profit you can consider with net profit, operating profit, and gross profit being the main three types. The effectiveness of using profit as your main business performance metric will vary greatly with the size and complexity of your business. For small to medium sized businesses with low complexity, looking only at profit will often be sufficient. However, for larger, more complex businesses, looking deeper into profit with other financial analysis would be recommended.
- Financial Analysis
Looking below the surface of profit to the contributing elements can provide further insight into the cause of changes in success levels. Financial analysis is another way to accurately and easily measure overall performance in your business. Some of the most common financial analysis metrics include: annual growth rate, rate of return, return on equity, operating profit margin, return on assets and many more. These metrics will help you to pinpoint areas of inefficiency so that you can then create an improvement strategy.
- Staff Turnover Rates
Satisfied staff are usually more productive and staff turnover rates are a key indicator of overall satisfaction. If staff are happy and comfortable in their role, they are more likely to stay with your company longer and work more efficiently. Further, staff become more efficient and productive the longer they are in a role as they become more familiar with processes and tasks. Recruiting and training new staff members can eat into profits and reduce productivity and efficiency during their onboarding and training.
- Cost Per Sale
Another powerful metric for any business type is sales volume. This is where you calculate the total cost per sale. Your calculation should include the hours and wages of all employees involved in the sale, as well as the cost of goods or services sold and so on. As many costs as possible should be included in this metric to get the most accurate numbers possible. Benchmarking and tracking the cost per sale over time will help you identify inefficiencies and possible process improvements through technology and/or training.
Net Promoter Scores or NPS are a powerful customer satisfaction metric. This score can be used to determine the effectiveness of your customer engagement strategies. It costs 25 times more to acquire a new customer than it does to retain a current customer and NPS can be a key indicator to customer retention levels. Having a good NPS score means that you have more satisfied customers that will stay loyal to your business and promote you to their friends or colleagues. Having a high NPS can lower your cost per sale and increase your overall profits. Therefore, your NPS can help you measure productivity, efficiency, and overall business performance because it will identify how effective your customer service and marketing strategies are.
These are just a few possible metrics you can apply to track your business performance. Benchmarking and reassessing these numbers over time is essential to tracking your process efficiency and trends within your business. Click here to learn more about ways to improve your business’ performance.