It’s relatively easy to start a business. The truly difficult part is maintaining business performance year after year. Even the most effective business models can lose efficiency over time, and need to adapt to changing demands and shifts in the market.
For this reason, it’s important to measure business performance, to track how things are going, see how you stack up against your competitors, and allow you to make the necessary changes to help your business grow.
Why is it Important to Measure Business Performance?
In the context of today’s highly-competitive market, there is less margin for error than ever before. One misstep can derail your well-laid business strategies, and you could quickly find yourself lagging behind your competitors and even facing business failure.
To avoid this, it’s essential to identify performance issues as soon as possible and be ready to act quickly to address them. If you want your company to be successful, you need to regularly measure your performance. This will allow you to catch mistakes and give you a comprehensive overview of the areas you need to focus on.
Furthermore, successful businesses rely on both short-term and long-term planning. A comprehensive road map of goals and objectives is the only way to take your business where you need to go.
However, setting goals is essentially useless if you don’t measure your progress towards them, and for that, you need to measure your business’ performance.
How to Measure Business Performance
So, how do you measure performance in the most accurate and useful way possible? Setting key performance indicators (KPIs) is essential, as they will give you formal metrics to measure your performance. However, to do this effectively, you need to work back from your goals.
Set Your Goals
Measuring performance starts with goal setting. Without formal goals and objectives, it’s impossible to focus your efforts on what’s most important. Otherwise, you risk trying to do everything at once, which is sure to deliver ineffective outcomes.
If your business does not already have clearly defined goals and objectives laid out in your strategic plan, start here. Your goals could be to boost sales, improve lead conversion rates, increase website traffic, or something else – it will be individual to your business.
Once you know what you’re aiming to achieve, you’ll be able to measure your performance against these goals.
Once you have defined your goals, the next step is to set corresponding KPIs – these are essential for assessing and, in turn, attaining your business objectives. KPIs are real, definable, and measurable outcomes that will allow you to check whether you are on track to meet your goals.
For example, if your goal is to boost sales, an indicator that will allow you to measure performance could be a growth in sales by dollar value or percentage. Or if you aim to improve your social media outreach, a corresponding KPI may be a growth in followers.
Track and Measure
With your goals set and KPIs defined, all that’s left is to measure your business’ performance against these goals using the KPIs. It’s important to do this on a regular basis. The timeframe is up to you, but the best way to stay on top of this is to set a schedule for measuring performance, for example monthly or quarterly.
Traditional KPIs vs New KPIs – What’s the Difference?
All businesses can benefit from using KPIs to measure business performance, though the most effective KPIs will vary depending on your individual business and the industry you work in.
KPIs can be broken down into categories such as:
- Sales KPIs
- Financial KPIs
- Customer KPIs
- Operational KPIs
- Marketing KPIs
- Social Impact KPIs
KPIs are now pretty well established in the business world. Although traditional KPIs are undeniably useful, some companies are moving towards a new type of KPI called OKRs, or Objectives and Key Results.
OKRs encompass the key results, or indicators, laid out by KPIs, while adding in the objective that you want to measure through that result. This gives each indicator an important context that gives your performance measurements deeper meaning.
OKRs and Their Benefits
Using OKRs can help businesses to more effectively measure and boost their performance. OKRs are closely linked to the top-level goals of an organisation, but translated into small bite-sized and results-based objectives that teams and individuals can use to measure their performance.
The benefits of using OKRs include:
- They involve individuals at all levels of the organisation in the decision making process by giving everyone visibility.
- They help teams to focus on their key priorities, as the approach suggests identifying just three to five OKRs per planning cycle.
- They boost employee engagement by demonstrating to team members how their work contributes to the organisation’s broader goals and allowing them to track their progress.
- They empower individuals to work independently within the overall framework of the business’ broader goals.
- They encourage greater organisational agility because they are designed to be adaptable to change.
Why Ongoing Education is Critical to Measuring Business Performance
The demands of business are always changing. That’s why ongoing education is critically important for everyone, even experienced executives and seasoned business owners. Going back to school will allow you to refresh your skills and learn about new KPIs, along with the other up-to-date business strategies.
EDHEC’s online Master of Science in International Business Management programme for example is ideal for working professionals who want to learn the latest from the world of business, transition to a new sector, or become an entrepreneur. With flexible online learning, you can gain a useful business qualification while meeting your work and personal commitments.