A strong vision for the future and a comprehensive business plan are essential tools for any growing business. However, it's important to conduct a business evaluation using a variety of methods to determine whether the business is on the right track for the future.
A look at the company's expenditures versus its income may provide some clues about the business's performance, but that's just a single facet of a business's overall performance. Here are some essential business evaluation methods you may want to consider as you calculate the success of your business in 2015.
1. Measure Customer Satisfaction
With the internet, customers today have a powerful platform on which to air their grievances, and virtually everyone has access to the reviews, comments, and suggestions that your customers post to websites like Yelp and Angie's List.
However, a simple inspection of those comments at the end of the year is only half the story. If you want to measure the overall success of your business and the satisfaction your customers have in shopping with you, it's important to anticipate and measure overall satisfaction throughout the year.
There are a variety of online feedback tools that can help you measure client satisfaction, and you may want to employ one if your business has a significant online presence. You may even want to conduct personal research by reading a book like Measuring Customer Satisfaction or taking a business course at a local community college.
2. Calculate Market Share
Your market share this year versus last year is a strong indicator of your company's success, and it may offer one of the best answers about your business's overall health. Profits are a good way to measure success, but measuring whether your business has increased its market share over the year is an even better way to evaluate the organization's direction.
Investopedia offers an excellent rundown of how to calculate market share:
"To calculate a company's market share, first determine a period you want to examine. It can be a fiscal quarter, year or multiple years. Next, calculate the company's total sales over that period. Then, find out the total sales of the company's industry. Finally, divide the company's total revenue by its industry's total sales."
3. Measure Quality of Services & Returns
As a proud business owner, you may feel that your products or services are best in class, but virtually every business can improve upon the quality of its offerings. To measure the quality of what your business offers, you must consider implementing an excellent customer service policy that records the number of returns your business experiences. This policy must also keep a record of the number of customers who request a refund after having received services from your business.
Implementing a comprehensive customer service policy for returns is not only essential for measuring the success of your products, but it's also something that customers want to see.
According to Time:
"The return—that moment when the customer effectively tells the store that the sales transaction was a failure, that they found something better, or a better price—is a test for retailers... it’s a test that retailers often fail. When that happens, shoppers feel tricked, and business suffers."
4. Look at Employee Turnover
If you're operating a home-based business with a single employee (yourself), you may not need to look at employee turnover, but it's a concept you'll want to familiarize yourself with in the coming years as your venture grows and moves beyond the confines of your house.
If you're already at a point in your business where you hire new employees on a regular basis, it's important to consider whether those employees are in a satisfactory work environment and likely to meet or breach the expected turnover for employees in your industry.
An interesting article from Gallup reveals:
"It is critical that you determine who is leaving -- your top producers or your hangers-on. If your overall turnover number is 10%, but the people heading for the exits are from the sales force's top tier, you have a serious problem."
Cultivating employee happiness is important for all businesses.
5. Measure Year Over Year Growth
You have several numbers you can use to measure your business's growth. You may want to examine net sales as opposed to gross sales, which will help you determine whether you're operating in a fiscally responsible manner.
Build Your Numbers explains net profit margin:
"Net Profit Margin is the measurement of profit you make for every $1 you earn in revenue. In other words, it illustrates how much money you retain (per $1 of revenue) after you pay all of your costs of production, company overhead expenses, and taxes."
It's important to take a look at your expenses versus your sales because you might have higher overall sales even though your net profit is lower. Perhaps you took on an extra employee or renovated one of your stores, but the action resulted in additional sales.
6. Count Incidents and Accidents
Every business owner has a responsibility to his or her employees to provide a safe working environment, and the quality and health of your business can be measured by the experience of your employees.
Evaluating the quality of your business environment is important because employees who aren't sick or hurt provide better quality work for their companies. Employees that work too many hours each week might get sick more often than the average employee, so it's important to take a look at numbers like total sick days taken by each employee.
Do the numbers reveal an employee was taking advantage of a sick leave policy or do they show that your employees might be working too many hours each week?
7. Measure debt
The phrase "you have to spend money to make money" is quite appropriate in business today, but that doesn't mean throwing fiscal responsibility out the window. To get your company off the ground, you may need to apply for a business loan and operate with some amount of debt for the first few years of your business's operations.
The Harvard Business Review shares:
"Excessive debt leverage becomes a significant albatross for a company when market demand for its products heads south, as many companies discovered during the current economic downturn. It actually creates more risk for a company in hard times."
Remaining fiscally aware is essential as a business owner, and it means looking at your finances on a regular basis – probably more often than a yearly business evaluation. Accruing some debt is almost always necessary when you start a business unless your venture is your second (or third) business and you've already made enough money to start a new business without debt.
8. Gauge the quality of your products
The number of returns your business experiences each year will give you some indication of the quality of your products, but it's also important to measure features like the durability and aesthetics of your products.
According to Ipsos RDA:
"Which quality dimensions, such as performance, features, reliability, durability, prestige, serviceability, convenience, or aesthetics define customers’ satisfaction with the quality of your goods or services."
Listening to the customer is essential when measuring the quality of your products.
9. Measure marketing success
You may use several marketing techniques throughout the year, and it's important to measure the success of each project so that you're not throwing money away on a marketing technique that isn't bringing leads, sales, and exposure to your company.
There are some fairly in-depth options available to the average business today for measuring marketing success including concepts like marketing metrics and predictive analytics. According to an interviewee of Docurated:
"Predictive analytics involves using statistics to examine and determine patterns in data."
In addition to examining the past success of your marketing endeavors, you may need to compare those successes – or failures – to known statistics to measure success. If you only use your own company's performance with a particular marketing project, you won't be able to compare your company's success with that technique versus the industry average.
10. Analyze your competitors
The idea of competitive analysis is exceptionally important to business strategy because it helps you discover your organization's weaknesses when you compare your business to the success of others.
In addition to finding the weak areas of your own business, competitive analysis also helps you find the weaknesses in your competitors:
"Once you have grouped your competitors, you can start to analyze their strategies and identify the areas where they are most vulnerable. This can be done through an examination of your competitors' weaknesses and strengths. A competitor's strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market."
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