3 weeks ago
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TEMPO.CO, Jakarta - As a business owner, it is essential for you to understand how to measure business success. This is primarily to help you make informed decisions for the growth of your business in the long run.
While success in business is often associated with financial results, such as profits and sales revenues, it also comprises other aspects, including customer and employee satisfaction.
This article will walk you through seven key metrics to measure how well your business is doing. Read on for more.
Why is it important to measure business success?
Measuring business success goes beyond just tracking revenue. Performing measurement for your business helps you implement and formulate an effective strategy, Harvard Business School notes.
It also allows you to identify obstacles and setbacks that may affect your business’s future performance. Moreover, tracking success helps you and your team understand how your roles and responsibilities relate to your business’s strategy.
How to measure business success
You can assess whether your business is doing well by using some success metrics. These metrics, often referred to as key performance indicators (KPIs), provide you with a picture of your business performance.
Remember, success metrics may vary depending on business priorities. Regardless, citing Indeed, Forbes, and Study Smarter, the following are some common metrics that can give you a holistic view of your business performance:
1. Break-even Point
Break-even points refer to the revenue a business needs to earn in a given period to cover its costs. This metric helps you determine whether your business meets, exceeds, or fails short of its main goal. Understanding your break-even point allows you to make better decisions.
2. Net Income Ratio
The net income ratio, also known as profit margin, is a metric that shows how much profit your business makes for every revenue after all expenses are deducted. Use this metric to determine whether a product is successful or not.
3. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) only applies to companies that run on a subscription-based model. MRR tracks the total predictable revenue generated by your business from active subscriptions each month. This indicator also helps identify changes in customer behavior and track growth in customer numbers.
4. Leads, Conversion, and Bounce Rate
Leads, conversion rates, and bounce rates are the most common KPIs for businesses that rely on marketing and advertising.
- Leads refer to potential customers who have made contact with your products or services.
- Conversion rate accounts for the percentage of leads who make a purchase.
- Bounce rate tracks how many people leave your website without taking any action.
5. ROI and ROAS
For businesses relying on advertising to generate sales, these two metrics are essential. Return on Investment (ROI) measures the return from all your business’s investments in marketing and advertising.
On the other hand, Return on Advertising Spend (ROAS) denotes the performance of your business’s advertising, specifically how much revenue it has generated.
6. Customer satisfaction
Tracking customer satisfaction is crucial to understanding the success of your business, as happy customers are more likely to make repeat purchases and refer others to your business. You can figure out whether your customers are satisfied with your business through their feedback.
Other customer-related metrics you should not overlook include customer health score, net promoter score (NPS), customer retention cost, customer lifetime value (CLV), and customer churn rate.
7. Employee Satisfaction
Aside from customers, as an owner, you should also be informed of your employee satisfaction. This metric denotes how content your employees are with their positions. High employee satisfaction generally boosts productivity and lowers rates of turnover.
For aspiring entrepreneurs planning to start a business, you can start by writing a business plan. We have covered this topic in our previous article, “How to Write a Business Plan." Click the link for more.
INDEED | FORBES | STUDY SMARTER
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