When you're too immersed in daily business operations, it's easy to lose sight of what you do and get distracted from your goals. One way to retain your focus is to evaluate the success of your business regularly based on the objectives previously set. Business evaluation not only keeps you abreast of your current position but also alerts you to possible threats that can lead to business failure. In this explanation, you will learn about business success evaluation and how to implement it.
Importance of evaluating business objectives
Objectives are an important measure of business performance. By evaluating your business's performance against them, you can find out if your company is heading in the right direction and make necessary changes to improve future results.
Objectives are specific, measurable targets that help you reach a business aim.
Business objectives are different from business aims. While business aims are quite vague and broad, objectives are specific and measurable through KPIs.
For example, to reach a goal of increasing your market share, you can set an objective of achieving a 10% market share in 3 years.
KPIs stand for Key Performance Indicators. They are measurable values that demonstrate how well a business is achieving its objectives. Some examples of KPIs are "monthly page visits", "targeted new customers per month", "completion rate".
Evaluating business objectives is important as it allows you to:
Improve the overall performance and results of your business
Know if your business is heading in the right direction and make changes when needed
See an overview of your financial performance and persuade investors to invest in your business
Motivate employees to work harder as they learn how their role impacts the business
Maintain a healthy cash flow and avoid business failure.
To learn more about success metrics, check out our explanation on Measuring success in business.
Criteria for evaluating business success
The criteria for evaluating business success can be divided into financial criteria (including market share, revenue, profit) and non-financial criteria (including customer satisfaction and employee satisfaction).
Let's take a close look at each of these:
Market share
Market share is a company’s sales as a percentage of the total sales in an industry. It measures the size of a company in comparison to the market and its competitors.
Google is a monopoly in the search engine market, accounting for 92.47% of the total market share in 2021.1
Here's the formula to calculate market share:
By monitoring the growth of the market share, we can determine:
How competitive a company is in the industry
Whether the company’s growth rate matches the market’s growth rate
Whether the company can achieve economies of scale.
Economies of scale refers to the reduction of product cost per unit as the company increases its output. Companies with a higher market share are likely to obtain economies of scale.
To increase market share, a company can:
Revenue
Revenue is the gross income from selling your products or services.
Here's the formula to calculate revenue:
Measuring revenue allows a business to:
An increase in revenue can be achieved by:
Updating your pricing strategies
Improving customer service
Reducing customer churn rates.
Churn rate is the rate at which customer stops buying your company’s products. By reducing the churn rate, you can encourage the same customer to make repeated purchases from your business, which increases revenues.
Profit
Profit is the difference between a company’s total revenues and total costs.
Here's the formula:
When total revenue exceeds total costs, the company is said to generate a Profit
When total revenue is less than total costs, the company incurs a Loss
When total revenue equals total costs, the company has a Break-even.
Making a profit is vital to a business as it ensures a positive cash flow to cover daily expenses. The company can also invest in new machinery to improve productivity or distribute the extra income to shareholders.
Profit metrics can tell us:
If the business has sufficient cash for future operations
How well the business turns sales into profits
If the business is creating added value with its production.
To improve profits, a business needs can either:
Variable costs and fixed costs make up the total costs of production. Variable costs are costs that change depending on the quantity of output. Some examples of variable costs are raw materials, packaging, wages (of workers hired per hour). Fixed costs are costs that stay the same no matter how much output is produced. For example, electricity, rent, and fixed salaries.
Customer satisfaction
Customer satisfaction measures how satisfied customers are with your products and services.
Measuring customer satisfaction allows you to:
Encourage customers to make repeated purchases
Discover customers’ deeper needs and wants
Improve your business's performance and avoid losing customers to a competitor.
Acquire new customers through word of mouth
Increase customer trust and loyalty.
Word of mouth is basically free advertising for your business. Your business is more likely to receive Word of mouth when customers are happy about the services they receive.
One common way to measure customer satisfaction is to collect feedback via a survey, a poll, or an interview. Surveys or polls can be published on online channels such as company websites, social media, emails, etc., or sent out in physical stores.
Employee satisfaction
Employee satisfaction is a measure of how satisfied your employees are at work.
It’s important to monitor employee satisfaction, as happy and motivated employees tend to work harder and contribute to your business's success.
Two metrics associated with employee satisfaction are:
Other objectives that can be used for business success measurement:
Number of stores opened
Number of customers
Carbon emissions
Cost minimization
Product quality.
Business success evaluation processes
While different companies have different processes for evaluating business performance, the primary steps include:
Fig. 1 - Steps to evaluate business success
Step 1: Identify SMART goals: SMART goals stand for specific, measurable, attainable, realistic and time-specific. The more specific your goals are, the easier it is to evaluate the performance and improve future results.
Step 2: Review business plan: Before evaluating business performance, remind yourself of the initial business concept, goals and directions. This will be the fundamental framework for carrying out your assessment.
Step 3: Prepare financial statements: After reviewing the business plan, start evaluating business performance by looking at financial statements including the balance sheet, income statement, and cash flow statement. While reviewing financial statements, pay close attention to important financial metrics such as market share, profit, and revenues. Compare the figures of the current period with previous periods and note down any trend or pattern. See also any irregularities in your business expenses.
Step 4: Survey the company’s shareholders: For a more accurate picture of your business performance, send out surveys to your shareholders and stakeholders to collect feedback.
After completing the four steps, you will have a sizable amount of information about your business performance and results. Use it to assess your progress towards the set goals and objections, and make changes where things are going off track.
Evaluating business success based on objectives - Key takeaways
Evaluating business objectives allows you to improve the overall performance and results of your business
Criteria for business success evaluation can be split into financial and non-financial criteria.
Financial criteria include market share, revenue, and profit.
Non-financial criteria include employee satisfaction and customer satisfaction.
Four steps to evaluate business success are:
Sources:
1. Joseph Johnson, "Global market share of search engines 2010-2021", Statista.com, 2022.
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