The BizFilings blog covering business tips and trends.
Measuring Your Business' Success
Published on Jul 18, 2012
Read 'Measuring Your Business' Success' at 'Time to Start Up,' the small business blog by BizFilings.
In the business world, success can typically be measured in terms of dollars and cents. If your company is raking in the dough, odds are you're doing all right. If, however, your cash flow looks more like a leaky faucet drip, it may be time to reevaluate your strategy.
But measuring a business' success can be more nuanced than just looking at a balance sheet. There are a multitude of metrics one can look at to determine whether a company is on the path to fortune or failure.
The most obvious, of course, is revenue -- is the company bringing in money? To truly determine whether your company is a success, you'll have to take into account operating costs, profit margins and net cash flow. All of these factors paint a complicated picture of overall business health. Entrepreneurs who are just starting a business will not have much to compare with, but year-over-year revenues can also indicate the likelihood that a business will continue to thrive. Look for growth in your gross profits -- 5 percent annual growth is considered healthy.
Think about your customers. How many do you have? If your business is over-reliant on a handful of big clients, that may be a sign of potential trouble. There is a significant risk to a company's long-term survival if one client comprises 10 percent or more of total income. Should that client decide to stop doing business with you, it would seriously cut into profits and potentially cause losses and even layoffs. Diversify your client base as much as possible to keep income sources varied and reduce the likelihood of being hurt by the loss of a single client.
You can gauge the relative success of your business by the attention it receives from marketing initiatives. In the last decade, internet marketing in particular has changed the game, letting smaller businesses compete on a global scale with larger corporations. Your website is now your biggest advertising tool, and unlike print ads or radio spots, it can tell you a lot about the health of your business. Most websites allow you to track visits, which can tell you how many people are looking at your product, where they heard about your company and how interested they are in what you have to offer.
Not only will these metrics help inform you of your business' success, they also inform potential lenders and investors of the merits of your company. Healthy revenue, a broad client base and a strong response to marketing efforts are all indications that your company is worth investing in.