I’ve been thinking this weekend about what the best metrics are to measure the health of a business. i know that this is a generic question and every business is different. Therefore, I think it’s important to classify your business into what it truly is before determining how to measure it. This post will focus on classifying the business.

I think that to look at a very high level view of a business, a few things should be reviewed:

1. Do you sell a product or service? – seems basic, but i think you’d be surprised at the confusion over this question. Lots of service companies try to make their service seem like a product. I believe a product has to be assembled from raw materials. A service is anything else. If you sell finished goods, then are you a distributor, a retailer, …? Are you then selling a service? This can be confusing
2. Do you sell your products internationally? – Many companies say their global, but I think you have to have a decent percentage (>20%) of your sales to foreign based customers to qualify as international. Also, people mix up global with producing things in foreign countries versus selling things there. To me, global means you sell things to customers abroad. You may have global manufacturing / outsourcing capability, but if 95% of your sales are in the US, I do not think you’re global. You may be diversified (risk view) from a manufacturing perspective if you’re in more than one country, but from a revenue perspective, you are very exposed
3. What’s your product introduction cycle (New products versus existing products)? - if most of your sales are from existing products, and this has been the case for several years in a row, then you may be falling behind competition or your industry may have reached a slow growth stage. Of course, a review of growth rates and the industry is important. I define new products as products created in the last three years. I’m also in a slower growth industry/company where new product introduction is more of an annual thing than a monthly thing.
4. From a customer perspective, how do you generate growth (New customers versus existing customers)? – This measures your sales effort. You can influence both existing and new customers (existing via upsell and new versus new sales efforts). New customers can come from new/existing geographies, new/existing channels. As you can see, the metrics in this category can get rather deep. I define new customers as customers that had their first revenue in the past 12 months.
   

This is just a start. I’ll continue to think and blog about this over time. If you have thoughts/comments, please let me know!