Evaluating Business Success Based on Objectives

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.

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.

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.

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

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.

To increase market share, a company can:

• Adopt new technologies

• Improve customer loyalty

• Develop a skilled workforce

• Acquire other companies in related industries.

Revenue

Here's the formula to calculate revenue:

$Revenue\mathit{}\mathit{=}\mathit{}Number\mathit{}of\mathit{}sales\mathit{}\mathit{\times }\mathit{}Selling\mathit{}price\mathit{}per\mathit{}unit$

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.

Profit

Here's the formula:

$Profit\mathit{}\mathit{=}\mathit{}Revenue\mathit{}\mathit{-}\mathit{}Total\mathit{}costs$

• 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.

Customer satisfaction

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.

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

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.

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.

Sources:

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