Measuring Your Business
by Ron Kurtus (revised 20 November 2011)
To improve your business, you must be able to truly verify that improvement. Some companies have a large amount of business but yet show diminishing profits. Others have such a great profit margin that they are pricing themselves out of business. What is needed is a good means of measurement. As quality guru W. Edwards Deming once said, "What you measure, you improve."
Questions you may have include:
- When should you measure business performance?
- What are some overall measurements you can make?
- When should you make specific measurements?
This lesson answer those questions.
When to measure
Measuring how your business is doing should be made both before and after any improvement program. Obviously, the exact same measurement method and conditions should be used in both cases.
Do not assume the present company performance metrics are valid. Often they are skewed or overlook not-so-obvious areas for improvement.
First look at very broad metrics for your business, such as cost and customer satisfaction.
How much does your product cost you? This includes the cost to make or purchase the product plus sales, delivery, service and repair costs. These are hard figures that are caused by many factors that can be improved.
Often companies do not include the cost to service and repair their products in the overall cost. Of course your profit is what the customer pays less your overall cost.
How satisfied is the customer with the product? Will the customer buy from you again? Does the customer refer your company or business to others, giving you word-of-mouth advertising?
This measurement is often a soft metric, depending on opinions and surveys. Often the truth is difficult to determine. The amount of advertising necessary to get in business is an indirect measure of customer satisfaction in many cases.
Ask your customers if they are happy with your products and services. Find out where customers heard about you. Keep track of how much business is repeat business, as opposed to new business.
Within the broad metrics there are more specific metrics that can be taken. These will point to areas where improvements can be made.
Costs from suppliers
The cost of goods from suppliers should be measured. Comparison of the prices for goods versus key items should be made:
- Timeliness - do you deliver when promised?
- Turnaround time to deliver goods
- Reliability of supplier to deliver
- Reliability and quality of product
- Percentage of rejected or unacceptable product
Cost of workers
Workers are essentially internal suppliers. A similar list of metrics apply to them:
- How fast do they work?
- How reliable is the worker?
- What is the quality of his product?
- How must time and material does he waste?
Cost of process
The same metrics that apply to your suppliers apply to your business with respect to your customers. Much of this has to do with your internal processes and how you run your business.
Broad measurements should be made before and after trying to improve your business and its processes. Specific measurements are used to find where bottlenecks are and to allow you to fine-tune your process for improvement.
Improving the well-being of society is a good measure of success
Resources and references
The following are resources on this subject:
The Goal by Eliyahu M. Goldratt; Northriver Press, 1992 ($19.95) - A best-selling book on production techniques or theories, written in the form of a novel.
Competing Against Time by George Stalk, Jr. and Thomas H. Hout, The Free Press, 1990 ($27.95) - Time is used as a metric in this approach on improving business performance.
Questions and comments
Do you have any questions, comments, or opinions on this subject? If so, send an email with your feedback. I will try to get back to you as soon as possible.
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