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Measuring Success in Business

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Business Studies

A company's success is often associated with its sales revenues and profits. However, financial results are not the only indicators of business performance. Companies also use non-financial metrics to determine how successful they are. Read on for a look at how both types of metrics are used to measure a business's success.

What are success metrics in business?

Before measuring a company's success, we must learn why a company exists in the first place. In other words, find out its aims and objectives.

An aim is the general goal of a business and an objective is a measurable target to reach that goal. For example, if a company aims is to increase market share, one of its objectives might be to capture a 10% market share in three years.

A business is considered successful when it achieves its aim and objectives.

This is true for both non-profit and profit firms. In for-profit firms, the objectives are typically geared towards financial results, whereas non-profit firms focus on social value. A non-profit firm can be considered successful even if it doesn't generate profits for the shareholders.

Since aims are relatively vague and broad, we tend to use objectives as success metrics for a business. See below for common objectives in measuring business:

Measuring success in business, objectives, StudySmarterFigure 1. Objectives to measure business success - StudySmarter

To learn more, check out our explanation Evaluating business success based on objectives.

Why is measuring business success important?

Success metrics give a picture of your business performance, which allows you to improve overall results as well as future performance.

For example, by measuring the progress of a business goal, you can know if your business is heading in the right direction and make changes when things go off track.

Financial metrics such as profit, sales revenue, and market share also provide potential investors with a snapshot of your business conditions and help them to decide whether to invest in your business or not.

In some cases, success metrics can motivate workers to work harder when they see their work bring positive results to the company. It is also important for employees to learn how success is measured, as metrics will help them to understand how their role impacts the overall result and put more effort into their work.

Finally, measuring financial performance can help you maintain a positive cash flow and avoid business failure.

Cash flow is the amount of cash coming in and flowing out of your business. A positive cash flow means that your outgoing cash exceeds the incoming cash, and thus your business has sufficient capital to continue daily operations.

Measuring success in business and examples.

As mentioned before, the way to assess your business's success is to weigh your performance against your objectives.

An objective is the specific, measurable target of a business aim.

Objectives provide a guideline for your business performance. Based on business objectives, you plan and measure business progress as well as make changes when things get off track.

You can set many objectives to achieve the desired outcome.

For example:

  • To improve customer services, you can set objectives to shorten the response time, increase the customer retention rate, or reduce customer complaints.

  • To increase sales revenues, the objectives may be finding new customer groups, entering new markets, or improving customer satisfaction.

Business success based on objectives can be measured through financial metrics and non-financial metrics:

Measuring success in business, financial and non-financial metrics, StudySmarterFigure 2. Measuring business success - StudySmarter

Financial metrics

Financial metrics are measures of your company's financial performance. They can be found in financial statements, which include:

  • The income statement - a statement of your business profitability during a given period.

  • The balance sheet - a statement of your company’s assets (what you own) and liabilities (what you owe to others)

  • The cash flow statement - a statement showing the amount of cash flowing in and out of your business.

Some important financial metrics include:

Sales revenue - the income received by the company by selling goods and services. Sales revenue is often listed on the top line of the income statement. By comparing sales revenue over the years, companies can measure their business growth.

Market share - means the sales of the company measured as the percentage of the total sales in an industry. A business will try to increase its market share over time. A higher market share will gain the company a competitive advantage, such as lower product prices and brand reputation.

Profit - the company's financial gain after deducting expenses. A higher profit margin means that the company has more money to cover its purchases and daily operations, which reflects an overall healthy financial condition.

To learn more about different financial metrics, check out our explanation Basic financial terms.

Non-financial metrics

Non-financial metrics are measures of business performance that can not be expressed in monetary units. Some examples of non-financial metrics are:

Customer satisfaction - the measure of how satisfied customers are with your business. To improve customer satisfaction, you need to pay attention to customer feedback, then use the collected data to improve your products and services. Common tools to collect customer feedback include polls, services, and email newsletters.

The number of customers - reflects your business's ability can draw in new customers. If your business has a hard time attracting new customers, there's a sign that something needs to be changed, for example, a marketing strategy or product features. The best way to keep track of new customers coming into your business is to build a customer email list.

Employee satisfaction - the measurement of your employees’ contentment with their jobs. The more satisfied the employee is with your business, the higher their productivity level and the company's output. To improve employee satisfaction, your company can implement an open and social culture to encourage employees to share their views and interests.

Starbucks collects customer data via Facebook, Twitter, and their in-house app, then uses this information to make product offers tailored to their needs. This results in higher customer satisfaction, as customers can choose more accurate flavours and tastes. With higher customer satisfaction, the number of sales also increases.

Measuring success is very important, as it allows a business to improve its performance and make changes when things go off track. Business success can be measured by both financial and non-financial metrics. Financial metrics will focus on the financial results of the company whereas non-financial metrics are associated with the social aspects of the business.

Measuring success in business - Key takeaways

  • A business succeeds when it achieves what it sets out to do. We measure success by matching the business performance with its objectives.

  • Objectives are different from aims. Aims are your general goals, whereas objectives are measurable achievements to help you accomplish your aim or purpose.

  • Success metrics let you know if the company is heading in the right direction, which helps you make appropriate decisions when things go off track.

  • Measures for business success can be split into financial metrics and non-financial metrics. Financial metrics can be expressed in monetary value while non-financial metrics cannot.

  • Some examples of financial metrics are revenues, profits, and market share. Non-financial metrics may include customer satisfaction, the number of customers, and employee satisfaction.

Measuring Success in Business

The way to assess your business success is to base your performance against your objectives. Objectives are different from aims. Aims are your general goals whereas objectives are measurable achievements to help you accomplish your aim or purpose. For example, to measure the success of your customer service, you can set the objective of reducing the response time from 1-2 days to within a few hours. 

Success metrics provide an actionable way to achieve a special outcome. It also gives you to focus to go in the right direction and make appropriate decisions when things go off track. Measuring the success of a business is also vital to winning the trust of your investors and employees. 

Starbucks uses Facebook, Twitter, iPhones applications and the “My Starbucks Rewards” scheme to boost customer engagement and offer more benefits based on purchase frequently. The result is not only a surge in customer loyalty but also customer satisfaction. Customers experience speedier service, more accurate flavours and tastes. Through customer engagement, Starbucks also find out their customers continue to respond positively to healthier food and drink choices. 

Here are 5 ways to measure small business success are: 

  • Assess financial statement

  • Track customer satisfaction

  • Collect employee feedback

  • Follow the number of customers

  • Evaluate employee satisfaction. 

Success in the workplace can be measured through: 

  • Job satisfaction

  • Meaningful work

  • Opportunities to learn and develop

  • Work-life balance

Final Measuring Success in Business Quiz

Question

Define business aim

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Answer

Business aim is the general goal of a business. 

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Question

Define business objective?

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Answer

Business objective is a specific, measurable target to reach a business aim. 

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Question

Give an example of business aim and objective

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Answer

Business aim: Increase market share

Business objectives: Achieve a 10% market share in 3 years.

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Question

A business is considered successful when ...

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Answer

it reaches its aims and objectives.

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Question

Business success can be measured based on ...

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Answer

Business objectives

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Question

Name 5 examples of objectives to measure business success

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Answer

  • Market share

  • Customer satisfaction

  • Number of employees

  • Revenues

  • Profit

Show question

Question

What is the main benefit of success metrics?

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Answer

Success metrics give a picture of your business performance which allows you to improve overall results and future performance. 

Show question

Question

You can set more than one objective to achieve the desired outcome. 

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Answer

True

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Question

What are 2 main types of success metrics? 

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Answer

Financial metrics and non-financial metrics

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Question

Name 3 components of financial statements 

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Answer

  • The income statement
  • The balance sheet
  • The cash flow statement

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Question

What is an income statement?

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Answer

Income statement is a statement of your business's profitability during a given period. 

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Question

What is a balance sheet?

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Answer

Balance sheet: is a statement of your company’s assets and liabilities. 

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Question

What is the cash flow statement?

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Answer

Cash flow statement is a statement showing the amount of cash flowing in and out of your business. 

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Question

Give 3 examples of financial metrics

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Answer

  • Sales revenues 
  • Market share
  • Profit

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Question

What are non-financial metrics for business performance?

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Answer

Customer satisfaction

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