There are a few key indicators that separate good businesses from great businesses. A great business will exceed in one or more high-performance indicators and this helps them to grow more quickly, successfully, and sustainably when compared to others in their industry. Building a high performing business can help it to be more profitable and make it easier to sell, which are common goals for business owners.
While there are many different performance indicators that business owners can look at improving, three key areas that need to be optimized to create a high performing business include efficiency, productivity, and profitability. Optimizing each of these areas can help a business owner to create a solid foundation upon which to grow a business that delivers long-term success and sustainability.
In basic terms, efficiency is the ability to achieve a desired result without wasting effort, energy, money, or materials. Efficiency in business is important because it allows a business to see positive results more quickly. When implemented strategically and effectively, efficient systems should allow a business to save time, save money, and ensure accountability.
Key indicators that a business is not optimized for efficiency are
- not having time to complete work activities,
- spending money with little to no return on the investment, and
- spending time repeating communication, tasks or other work activities.
Greater efficiency should be designed to help a business improve performance in profitable activities. One example of an efficiency indicator is minimizing operating expenses related to sales.
It is easy to confuse efficiency with productivity. Productivity is how well a business uses its resources to create and deliver goods and services to customers. High levels of efficiency lend themselves to increased productivity which is beneficial in a few different ways. Increased productivity lowers the production cost per unit of a service or product. This can benefit a business by allowing them to lower prices and capture a larger share of the market as compared to their competitors or increase profit margins. One example of a productivity indicator is sales per employee.
Profitability measures the ability of a business to generate revenue in excess of expenses. The greater the profitability of a product or service, the more likely a business is to grow. When a business has worked hard to increase efficiency and productivity, it is more likely to be profitable. Gross margins can be a good measurement of profitability.
Understanding and maximizing high-performance indicators can be an onerous task for business owners but it is important if a business is to grow and be successful. Business owners can work with a qualified business coach or Certified Business Intermediary to review where they are lagging and what can be done to improve the overall business operations. Creating and sustaining a high performing business does take time and effort but the rewards are significant. According to a report recently released by Business Development Canada, high performing businesses achieve economies of scale that lead to greater profits. Profits can then be reinvested into the business to encourage continued improvement and a competitive advantage. This helps to build a stronger foundation upon which a business can grow. Growth then allows more investment in things that further improve efficiency, productivity, and profitability such as equipment, technology, and employees. Businesses are then in a better position to earn and retain a larger or more diversified share of the market.
Next time you are reviewing the growth plan for your business, be sure to look for opportunities to focus on improving high-performance indicators that will take your business from good to unstoppable.