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Personal Finance

Effective measurement of return on investment

 

For more than 10 years, I have been testing out new ideas at my company and it has been a journey, always a work-in-progress. As an entrepreneur, it is important to see what works at your business and what does not.

It might feel as if the business is running well, but always have verifiable data to measure successes and confirm the business is running well. Any business performance is unpredictable, and about the only thing that you can count on is that everything continuously changes. That is why you need to constantly measure your business performance so you know what is successful and what is not.

So, how do you measure your business success?

SALES INDICATORS. Volume and frequency of sales can provide information on business success. You can break this down by sales to new customers, sales to existing customers, profit per sale, which products/services are making the most money, or any other categories that might be important to your business.

FINANCIAL STATEMENTS. The three main financial statements you can use at your small business are the income statement, balance sheet, and cash flow statement. The income statement shows profits and losses. The balance sheet shows financial health, measuring how much you owe and own . Cash flow statement shows liquidity.

You need to see how much money is generated.

Without it, your business is done. With it, you can grow your business and continue pursuing that entrepreneurial dream. How much money is going in and out of your business?

Measuring business growth performance means checking the money flow.

To see how profitable the business is, check out the financial statements.

CUSTOMER SATISFACTION. If customers are not satisfied after buyings, they probably will not do it again. How do you measure customer satisfaction? There are a few different ways, including surveys, reviews, or asking. Customers will help you to improve services or products. The customers know what they need, and learn how to satisfy their needs by listening to them.

Knowing how many new customers you get is a great way to measure success and predict growth. If the business is stagnant with the same customers, you might need to kick up your marketing strategy.

See if the people buying from your business are existing customers. Develop a client list with email addresses to track customers. That way, you can easily count the number of new customers per month or year. Average how many customers you get from each new business action, like adding products or upping your marketing efforts.

By averaging your new customers so often, you can measure how successful your business is at drawing in new people.

EMPLOYEE SATISFACTION. As the face of your business, your employees are a critical part of your company, and helping ensure they have a positive work environment that lets them do their jobs with pride and efficiency will help deliver success.

If your employees feel appreciated, they are more likely to go the extra mile for the customer, which will increase customer satisfaction and, therefore, lead to referrals and new customers – the business circle of life.

Conducting annual employees review will let you see how happy they are as well as how effectively they complete tasks.

Performance reviews help employees see what they need to improve and gives you further insight into their workload.

PROFITABILITY RATIOS. The main profitability ratios include gross profit margin, return on assets and return on equity.

In addition to profitability ratios, a business also might want to compute the growth rate of individual accounts on the financial statements. Since these techniques measure financial success, it is imperative the business has an accurate financial statement.

UNDERSTANDING YOUR MARKET. Sometimes, you need to know how the market is doing in order to measure the success of your own business. If you and your competitors aren’t doing well, it might be because there is a lull in the market.

Don’t be down if your business’s profitability decreases. It might be a result of the national market and out of your control. Decreased profitability could be a good time to introduce new products if demand for current product or service is put on hold.

COMPETITION. It may not be a wise step to compare yourself to others in your personal life, but in a business, it helps keep you on toes.

Keeping track of the competition and updating business ideas regularly will ensure you remain higher up on the graph.

Find the same ratios for similar companies or companies in similar industries and compare performance.

EXPECTATIONS. How do you feel about the success of the business? Assessing your happiness is important when measuring business success.

When measuring success, try to consider your perception. How do you feel the business is doing? The numbers are good, but are they where you want them to be?

Be happy with your progress to encourage all-around success. If you aren’t happy, it can trickle down to your employees and customers.

Make sure to sit down every now and again to ensure you are satisfied with where the business is heading, and make changes if not.

The relevant question is not why you need to measure your business performance and ROI but how to measure it.

The factors ascertaining this could vary from business to business, depending on the industry and the individual, but the above points should give you headway in feeling the pulse of the venture.

Overall, be satisfied with your achievements and completion of your business goals to appreciate all-round success.

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