It is probably one of the most important activities for any business to carry out, which is to define a metric to measure company’s success. This helps business owners to prioritise activities, and stay focus on what means the most to the company. Therefore, selecting the right metric to measure company’s success that is truly linked to the company’s success is vital. In that case, how do we measure company performance?
Some of the most common performance metrics that being used in today businesses are:
Financial metric is the most common metric in measuring company’s success. Some of the metric used to measure company’s success are:
- Profit margins: Gross profit margin. Operating profit margin. Net profit margin on sales (Net income)
- ROA (Return on total assets)
- ROCE (Return on capital employed)
- ROE (Return on equity)
- EPS (Earnings per share)
Number of Active Users
In certain type of industry, the number of active users may be an appropriate metric of measuring company’s success. For example, Facebook had 1.79 billion monthly active users in 2016. The number of active users also can provide insight about your company, such as user base, usage trends and what they love/ hate about your service. This then allows you to improve the user/customer engagement. Hence using the number of active users is also useful as a metric to measure company’s success.
Fundraising capability, a metric to measure company’s success, is used often particularly in the startup world. It represents investors understanding and confidence in the company’s fundamentals and visions. Multiple successful rounds of fundraising indicates that investors are buying into the idea and vision, and the company is able to provide substantial data to justify its strong fundamental, capable of working towards its objective and achieve certain level of success in that industry. Hence utilising fundraising capability as a metric to measure company’s success is essential.
Metric to measure company’s success: Are these the right indicators of sucess?
The above are definitely important for SMEs, as they sometimes even define a company’s survival in the harsh environment. Yet the definition of success in this case falls only under money. What is the metric to measure company’s success in this case? Is the metric of success measured in the form of profits and performance only?
Success: Contribution to the society
LSTN Headphones provide a hearing aid for a child in need for every pair of headphone sold. Inspired by her friend Bridget Hilton who cofounded the LSTN Headphone, Brittany Hodak of ZinePak defines success as contributing hundreds of volunteer hours and good deeds to the world. She challenged her team to improve happiness, wellbeing, or health of one person every week in 2014 while planning and launching a new app and working hard to reach 5 million new users. The result is the ten-person team reaching out to 520 people in the community in a year.
Steve Jobs does not use the number of iPhones sold as a metric to measure company’s success, but by poking the world around you and reshaping it into something you think is better in several industries such as launching personal computers, digital amination, MP3 players, smartphones, online app stores and then tablets.
Sally Field, in 1985, gripped her Oscar and told the Academy, “You like me! You really like me!” The box office success of her movies seems unimportant to her compared to the official symbol of respect and recognition from members of her profession. The power of approval as a measure of success can lie in gaining positive reviews by consumers of how much value your product and service has improve their lives.
How do you define your company’s success?
Profit is the fundamental reason for conducting a business, and using the right metric to measure company’s success is crucial. However, the success of a company can be defined more than just a concept of profitability. The success of a company also lies in benefiting the society and improves the quality of life of the community, and money is a by-product of that success.
For SMEs today, maintaining adequate cash flow is a huge challenge for business owners and it is not getting any easier. SMEs are trapped in a double credit crunch between large corporations who stretch payment terms up to 120 days and banks who have adopted stricter lending criteria. The cost of financing is increasing and becoming a problem for them. InvoiceInterchange aims to help SME providing a new source of working capital finance that is simple, flexible and online giving businesses control and flexibility to manage their cash flow, on their own terms whilst the marketplace drives competitive pricing and lowers the cost of capital for SMEs.
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Hodak, B. (2013, Dec 23). The One Metric I’ll Use to Measure My Company’s Success in 2014. Retrieved from The Huffington Post, link
Michiels, I. (2014, Sep 26). Top 4 Metrics for Measuring the Success of Business Intelligence. Retrieved from customerTHINK, link
Zetlin, M. (2015, Sep 3). Here’s How Steve Jobs Defined Success. How About You? Retrieved from Inc, link