Business efficiency: How to measure and improve it

Improving business efficiency during economic uncertainty might seem intimidating, but it boils down to two primary objectives: maximizing resources and minimizing unnecessary costs.

Between economic uncertainty, labor costs, and logistical delays, it’s natural for business leaders to wonder how their company can survive and thrive in an evolving business environment. Although this scenario isn’t ideal, it provides an opportunity to take a step back, reassess their processes, and develop plans to improve business efficiency.

This article will explore different ways to evaluate business efficiency and cover practical tips to keep your organization profitable and resilient.

Understanding how business efficiency works

Business efficiency refers to how effectively a company uses its resources (money, labor, materials) to produce an output (products and services). High-efficiency businesses maximize their resources to create sustainable profits.

Business efficiency addresses key questions, such as:

• How productive are employees?
• How much waste does our company produce?
• Are we seeing a positive return on the tools, materials, and talent we invest in?
• Are we delegating work to the appropriate people and streamlining our processes?

Put simply, it’s about achieving your desired outcome while spending less time and money. 

Remember that efficiency in business is not the same as business efficacy, which refers to the company’s ability to live up to its obligations to clients and customers. If you’re efficient but aren’t honoring the terms of your contracts or providing your customers with your promised services, you’re not operating your business effectively.

Types of business efficiency

There are several ways to gauge business efficiency. Here are some of the most important areas of focus:

Operational

Business operations encompass the various operations an organization uses to produce goods and services. This includes aspects such as: 

• Manufacturing
• Supply chain management
• Customer service
• Project-based accounting, finance, and payroll processing

Operational expenses usually make up the majority of a company’s costs. Accordingly, it’s important to focus on operational expenses to improve business efficiency.

Financial

This refers to how well a company uses its assets to generate income. Common measures of financial efficiency include:

• Overall profitability
• Fixed asset turnover
• Receivable turnover
• Inventory turnover

As a rule of thumb, operational costs should be 60% or less of revenue, while expenses should be 30% or less of revenue.

Time

Maximizing time should be a daily priority for businesses in all industries. Rather than adhering to overly generous deadlines, your team should spend the minimum time necessary to complete a task successfully.

Look at your current timelines and see if shortening them would be in your best interest. If your team is finishing tasks ahead of schedule and has nothing to do until your next business sprint, restructuring those tasks to shorten their time estimate may help you accomplish more at the same price point.

Resources

Running a lean operation can save money while still getting the work done promptly. Compare the number of employees to the revenue you’re bringing in. Efficient businesses have only the employees and resources necessary to get the job done. 

Metrics for measuring business efficiency

Let’s look at some common key performance indicators (KPIs) you may want to track to monitor your efficiency.

• Your return on investment (ROI). Ideally, your team and digital tools should help you earn higher profits over time without dramatically increasing the money the business is investing into those assets. If your ROI calculations are low, your business isn’t operating efficiently.
• Your productivity is relative to your labor costs. Look at the relative productivity of employees compared to what you’re paying and your total gross margin for the quarter or year. If your labor costs are high, eliminating the employees who aren’t performing to standard could end up making your organization more productive and more efficient.
• Your inventory movement. Truly efficient businesses stock and sell products with the most movement rather than trying to maintain a stock of items that sell slowly. 

Consider the most important factors for your business and use those KPIs to inform your data monitoring efforts.

How to improve business efficiency

Although there’s no way to guarantee success during difficult times, business owners can implement simple steps to keep the business running as efficiently as possible.

1. Keep employees on task

Prioritizing tasks and making sure everyone is working on the most critical projects can improve business efficiencies. 

Encourage periods of deep focus with time management techniques like the Pomodoro timer. Recommend task management tools like ToDoist or Trello to prioritize tasks and track progress so nothing falls through the cracks. 

2. Keep tasks in one place 

Keep all tasks and sub-tasks in one location so everyone can monitor progress and identify their core responsibilities. 

Use project management tools like Asana, ClickUp, Trello, Monday, or Basecamp to house all tasks and assign individuals to each component they’re responsible for. 

For example, if the business is launching a new marketing campaign, the project manager can improve marketing efforts and efficiency by assigning each task to a designated person.

The manager will house all of those tasks under one parent project in the project management tool so everyone can monitor their progress.

3. Be consistent

It can be tempting to cut corners when uncertainty is ahead. And while this might save time or money in the short term, it raises the risk of errors and malfunctions that hurt companies in the long run.

Instead, establish processes that ensure all tasks are completed quickly, but effectively. Having official processes also keeps employees on the same page so they can work more efficiently. 

4. Optimize workflows

Take a long, hard look at your current workflows. Are there any areas that cause slowdowns or delays? Do you have one too many review layers in place for each project, even when projects are ready to launch after the first review? 

Cutting down on those unnecessary steps can help you optimize your workflows and improve your business’s efficiency now and in the long run. Just be sure to reevaluate your workflows as your company changes and grows. 

5. Automate

Automating tedious or repetitive tasks frees your team up to focus on higher-level work. This could include things like data entry or inventory counts. Business process automation and workforce automation also minimize the risk of human error, which hurts efficiency. 

Teams can automate countless processes with software tools, including:

• Accounting software
• Project management software
• Inventory management software
• Email and social media marketing software

Some organizations may be hesitant to implement new technologies if they see an economic downturn ahead. However, automation keeps organizations agile over the long run and helps them navigate uncertainty.

Keep in mind that just because you can automate something doesn’t mean you always should. Consider how automation may impact your customer experience and other areas that require a personal touch.

Benefits of boosting your business efficiency

Business efficiency should always be top-of-mind for business leaders, but it becomes even more important during times of economic uncertainty. 

Why businesses should prioritize efficiency:

• Higher profits: The primary benefit of business efficiency is improving the company’s bottom line. Cutting unnecessary expenses and streamlining processes helps companies pad their margins and re-invest in the business.
• More resilience: An efficient business is a resilient business. Companies weighed down by unnecessary costs, redundant tasks, and outdated processes may have more trouble navigating uncertain times.
• Customer satisfaction: Optimizing your workflow allows your team to operate faster and smarter, helping to satisfy the people your business serves. This can help you retain existing customers and get new customers down the line.
• Employee satisfaction: Inefficient business operations may negatively impact your company culture. However, freeing up your team members from tedious tasks and instilling an efficient work environment can empower them to reach their full potential.

Boost productivity and enhance profitability for growing businesses

Improving business efficiency is your first line of defense against economic turbulence. You can’t control external factors like the market or customer behavior—but you can control how your organization prepares for tough times.

If you’re a well-established company, QuickBooks Enterprise has the tools you need to keep your company running at maximum efficiency.

For growing or complex business, more integrated solutions like Intuit Enterprise Suite are helpful. Offering key functionality to boost efficiency across every aspect of your organization.