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Evaluating Business Success Based on Objectives

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Business Studies

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:

  • Adopt new technologies

  • Improve customer loyalty

  • Develop a skilled workforce

  • Acquire other companies in related industries.

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:

  • Plan its future expenses

  • Assess trends and create new growth strategies

  • Update prices to improve income.

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:

  • Increase the number of sales or selling price

  • Reduce variable costs per unit or fixed costs.

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:

  • Labour retention - The ability of the company to keep the employee for a long period of time.

  • Labour turnover - The rate at which employees leave your business.

A business with happy employees often has a higher retention rate and lower labour turnover rate.

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:

Evaluating business success based on objectives steps StudySmarterFigure 1. Steps to evaluate business success, StudySmarter

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:

    • Identify SMART goals.
    • Review the business plan.
    • Compare the current period’s financial results with the previous period.
    • Collect feedback from stakeholders.


Sources:

1. Joseph Johnson, "Global market share of search engines 2010-2021", Statista.com, 2022.

Evaluating Business Success Based on Objectives

Business objectives are measurable results that help you achieve a business aim. Success criteria are measures used to assess how well the company is achieving its objectives. Some examples include market share, profit, revenue, customer satisfaction, employee customers, etc. 

Four steps to evaluate business success are: 


  1. Identify SMART goals 
  2. Review the business plan. 
  3. Compare the current period’s financial results with the previous period. 
  4. Collect feedback from stakeholders. 

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

We can evaluate business success based on financial criteria (including market share, revenue, profit) and non-financial criteria (including customer satisfaction and employee satisfaction). 

While aims can be vague and broad, business objectives provide are specific and measurable. For example, to reach a goal of increasing market share, you can set an objective of achieving a 10% market share in 3 years. 

Final Evaluating Business Success Based on Objectives Quiz

Question

What is a business objective?

Show answer

Answer

A business objective is a measurable target of a company’s goal. 

Show question

Question

What is the difference between an objective and a business aim?

Show answer

Answer

An aim can be vague and broad while the objective is specific and measurable.

Show question

Question

Give 3 reasons for evaluating business objectives

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Answer

  • Improve the overall performance and results of your business

  • Know if your business is heading in the right direction and make changes when needed

  • Persuade investors to invest in your business

Show question

Question

Name 3 financial criteria to evaluate business success

Show answer

Answer

Market share, profit, revenue

Show question

Question

Name 3 reasons to measure revenues of a business

Show answer

Answer

  • Plan future expenses. 
  • Assess trends and create new growth strategies. 

  • Update prices to improve income. 

Show question

Question

What can profit metrics tell us?

Show answer

Answer

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 

Show question

Question

Name 3 benefits of measuring customer satisfaction

Show answer

Answer


  • Improve product and services to attract more customers

  • Discover customers’ deeper needs and wants

  • Acquire new customers via word of mouth

Show question

Question

What are 2 metrics associated with employee satisfaction? 

Show answer

Answer

Labour retention and Labour turnover

Show question

Question

Name one method to evaluate customer satisfaction

Show answer

Answer

Send out polls and surveys via online platforms or physical stores to collect customer feedback. 

Show question

Question

What is a SMART goal?

Show answer

Answer

A goal that is specific, measurable, attainable, realistic and time-specific. 

Show question

Question

Name 3 components of financial statements 

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Answer

Balance sheet, income statement, cash flow statement. 

Show question

Question

A company breaks even when ...

Show answer

Answer

Revenue equals expenses. 

Show question

Question

What is the formula to calculate a company's profit?

Show answer

Answer

Profit = Total revenues - Total costs

Show question

Question

How to calculate the company’s sales revenue? 

Show answer

Answer

Revenue = Number of sales X Sales price per unit.

Show question

Question

Define customer satisfaction

Show answer

Answer

Customer satisfaction measures how satisfied customers are with your products and services. 

Show question

Question

Define employee satisfaction

Show answer

Answer

Employee satisfaction is a measure of how satisfied your employees are at work. 

Show question

Question

What are 4 steps to evaluate business success?

Show answer

Answer

  1. Identify SMART goals 
  2. Review the business plan. 
  3. Compare the current period’s financial results with the previous period. 
  4. Collect feedback from stakeholders. 

Show question

Question

For a more accurate picture of your business performance, you can send out surveys to ... to collect feedback.  

Show answer

Answer

shareholders and stakeholders 

Show question

Question

While reviewing financial statements, you should pay close attention to important financial metrics such as ...


Show answer

Answer

market share, profit, and revenues. 

Show question

Question

Word of mouth is free advertising for your business.  

Show answer

Answer

True

Show question

Question

When total revenue equals total costs, the company has ...

Show answer

Answer

a Break-even.

Show question

Question

What is the benefit of reducing the churn rate?

Show answer

Answer

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 repeat purchases from your business, which increases revenues. 

Show question

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