measure your business efficiciency

Measuring Your Business’ Operational Effectiveness

More efficient = more effective. More effective = more money. More money = more HOLIDAYS IN SPAIN. JK. So what do we mean by operational efficiency? This is the ability of a business to reduce waste in time, effort and materials as much as possible, while still producing a high-quality service or product. 

Business operations are typically responsible for a large portion of the company’s costs, which is why most efforts to improve efficiency are  often focused on this aspect of the business.

But how can you track your business’ operational efficiency? 

Operational metrics are the key performance indicators (or KPIs, for short, and because marketing LOVES an acronym) of all the activities happening in your business. These can help you:

  • Keep track of the efficiencies of various operations in your business – some may be more efficient than others. Look at those that are the most financially costly and those which are  time-suckers.
  • Strategise accordingly based on the desired KPI benchmark for a particular process, and brainstorm how you can improve to get you to that KPI. It doesn’t have to be a HUGE change, it can be small, tactical and incremental changes. Often these are the ones which add up and make the biggest difference.
  • Allocate resources and mobilise your workforce to improve efficiency based on your KPIs.

Determining which operational metrics work for your business which depend on your industry and your specific business context. However, there are certain KPIs that most businesses can rely on. Here are the 10 KPIs to track to assess your efficiency, as well as your competitive standing within the industry.

  1. Sales Revenue. At the end of the day, the money your business makes is the ultimate indicator on how well it is performing.
  1. Gross profit margin. This metric helps you understand the division of your sales rands – how much you made in profits, and how much went into other costs.
  1. Net profit margin. This helps you see just how much profit was made on products or services sold after discounting all the sales expenses.
  1. Traffic to your website. The world is increasingly going more digital from research to sales, which is why tracking the activity and visibility on your website can be an important metric to track when looking at your overall efficiency. 
  1. Conversion rate. This metric shows you how effective your marketing and customer convincing strategies are with regards to converting the maximum number of leads into paying customers.
  1. Retention rate. While acquiring new customers is important, it is just as important to ensure that your business is retaining its existing customers. This metric will allow you to see how satisfied your customers are with your products and services and how likely they are to become advocates. 
  1. Customer Lifetime Value. How lucrative is each customer to your business? Or put more simply – how much does your business stand to profit from each customer? This metric will enable you to relook strategies and improve customer service.
  1. Customer Acquisition Cost. Part of your marketing efforts will be to acquire new customers. This metric allows you to calculate how much your business spends to acquire one new customer and you want to keep this as low as possible.
  1. Employee satisfaction. While keeping track of your customers’ satisfaction is imperative to your business, so is the satisfaction of your employees. Using surveys and getting feedback is a great way to understand how satisfied your employees are, and adjust accordingly to boost satisfaction and thus productivity.
  1. Setting timed goals. How realistic are your goals? How long will it take to achieve your goals? Keeping an eye on resource allocation, productivity, efficiency and finances is always easier when you have a goal to achieve. 

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