Why do some businesses thrive while others flop? Sometimes the answer is obvious: One offers better products or runs smarter marketing campaigns. But another factor, often overlooked, lies beneath the surface: One business may simply operate more efficiently than the other.
Efficiency in business touches everything from supply chain management and inventory management to overhead costs and energy usage. When combined, efficiency improvements can streamline your business processes and help you maximize output with fewer resources.
Here’s how to increase business efficiency for long-term success.
What is business efficiency?
For business owners and managers, business efficiency (also known as operational efficiency or company efficiency) means getting the most out of your resources, whether that’s labor, equipment, materials, capital, or time. For an ecommerce merchant selling on Shopify or a similar platform, efficiency can be the difference between burning out early and thriving over the long term.
By maximizing returns on its assets, an efficient business can scale faster, serve customers better, and reduce costs. The result is higher profitability, happier employees, and greater customer satisfaction. All of these help you stay competitive in a fast-moving market.
Types of business efficiency
Business leaders can improve efficiency across their organizations in many ways. These actions, often incorporated into broader continuous improvement efforts, can make it easier to achieve business objectives while maximizing revenue or finding cost savings.
Here are some specific areas where leaders strive to improve company efficiency:
Operations
Operational efficiency targets core activities turning inputs (e.g., raw materials, human resources) into outputs (e.g., physical goods, software as a service). To make your business operations more efficient, work on reducing redundancies, optimizing supply chains, and leveraging technology to keep things running smoothly.
Labor
Labor efficiency is about maximizing workforce productivity and effectiveness. It’s done not by pushing employees to work harder but by helping them work smarter. Tools like project management software can automate repetitive tasks and prevent duplication.
Financial
Financial efficiency involves increasing profit and cash flow without straining your resources. Tactics include optimizing your capital allocation, managing debt, and prioritizing a healthy cash conversion cycle—one of the key metrics in tracking financial liquidity.
Energy/environmental
This form of efficiency emphasizes reducing energy consumption and environmental impact. Minimizing waste and optimizing resources can lead to cost savings while appealing to environmentally conscious consumers. For example, efficient inventory management and shipping practices can reduce both your carbon footprint and energy costs.
Time
Businesses can improve business efficiency by making the best use of available time, especially in day-to-day operations. Scheduling software, automation, and time-tracking tools help teams avoid bottlenecks and missed deadlines. They also show respect for employees’ time.
Process
Optimizing your internal processes involves reexamining your standard operating procedures to seek new efficiencies. You may find you can streamline operations by using project management tools to improve task allocation. Or you might find that not every meeting requires your full team.
Materials
Finding ways to use your raw materials, space, and equipment more efficiently can give you a competitive advantage in the marketplace. Tactics like reducing material waste by adjusting your assembly line or reconfiguring packaging to increase pallet storage can help maximize your output. These changes allow you to do more without needing additional inputs.
Benefits of business efficiency
Whether running a startup or a legacy brand, every entrepreneur is interested in building a more efficient business. Julia and Jordy Kay, the founders of Great Wrap, an Australian business known for its plastic-free food wrap made from potatoes, have seen strong consumer demand. But they’re still focused on boosting efficiency.
“Efficiency is a really big thing that we are working on at the moment,” Julia says in an interview with Shopify Masters.
“Right now, our pricing is slightly higher than we'd like it to be, and we've kind of interrogated our processes and realized that within all of the inputs that we have and the way we are doing things, there are a lot of cost savings that we can make.”
Their goal? “Bringing our prices down for the consumer.”
Here are a few of the ways efficiency can benefit your business:
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Increased profitability. Streamlined processes reduce waste and minimize unnecessary spending, boosting profit margins without raising prices.
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Swift, informed decision-making. When workflows are efficient and data is easy to access, teams can make informed decisions more quickly.
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Greater team productivity. When efficiency is prioritized, teams can focus on high-value work instead of repetitive or manual processes, leading to better output and higher morale.
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Satisfied customers. Efficient operations often result in more accurate service and timely delivery, which can drive customer satisfaction and loyalty.
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Scalability and growth. With efficient processes in place, your business can handle increased demand without a corresponding increase in resources, unlocking sustainable growth and new market opportunities.
So, how are the Kays pursuing new efficiencies for Great Wrap? They’re building a bio-refinery.
“What that will mean is that we are able to take local potato waste, essentially feed that to bacteria, and the byproduct of that is a biopolymer," Julia says. “That’s like the ultimate, ultimate for us.”
How to measure business efficiency
As a business owner, you have various ways to measure efficiency. Start by identifying the key performance indicators (KPIs) you want to track. These include:
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Inventory turnover ratio. This measures how often you sell and replace inventory over a given period. High turnover suggests strong inventory management, while a low inventory turnover ratio may signal overstocking or poor product fit.
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Cost per unit. This tracks how much it costs to make one unit of product. Lower costs generally indicate greater efficiency. However, capital-intensive businesses, like microchip manufacturers, can recoup their costs when they sell enough units.
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Process automation rate. This tracks how many workflows (e.g., invoicing, customer communications) are automated. A higher rate means your workforce can focus on tasks that require critical thinking and a human touch.
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Order fulfillment cycle time. This is the time between a customer placing an order and receiving it. A shorter cycle time indicates a highly efficient logistics and fulfillment process, which directly correlates with satisfied customers.
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Downtime percentage. This tracks how often your business’s equipment sits idle. Minimizing downtime helps you maximize the return on investment on your physical assets.
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Customer acquisition cost (CAC). Your customer acquisition cost reflects the average amount of money you spend to acquire a new customer. Efficiently run businesses often have lower CAC.
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Customer satisfaction score (CSAT). CSAT is a key metric gauging efficiency from the customer’s point of view. High scores can indicate strong business performance in areas like product quality, delivery speed, and sales team communication.
How to improve business efficiency
- Invest in automation tools
- Standardize your processes
- Prioritize employee training and development
- Continuously monitor KPIs
Improving business efficiency requires a holistic approach, from daily operations to long-term strategy. Start by implementing these key practices to streamline workflows, reduce waste, and boost your bottom line.
Invest in automation tools
Automation tools and software can handle repetitive, manual tasks like invoicing, data entry, and marketing campaigns. Shopify, for example, offers merchants a bevy of marketing automation tools. Shopify Flow enables custom workflows for order fulfillment, inventory management, fraud prevention, and more.
For large businesses, enterprise resource planning (ERP) systems can integrate various departments—from finance to inventory—to create a single unified database, providing the whole team with valuable insights and eliminating data silos.
Standardize your processes
Standardized workflows make it easier to identify bottlenecks, train new hires, and ensure consistent quality, regardless of who is performing any one task. Creating clear, repeatable procedures for all key business functions enables everyone from seasoned veterans to new employees to collaborate on the same project and produce outcomes that meet company standards.
Prioritize employee training and development
Once you’ve standardized your operations, provide ongoing employee training to ensure your staff has the skills and knowledge to use tools efficiently and effectively and adapt to changing market dynamics.
Training isn’t just about technical skills—it also builds culture. Many successful business leaders promote a culture of continuous improvement, where employees actively seek ways to improve efficiency from the ground up.
Continuously monitor KPIs
Regularly track metrics like net sales, CAC, and order fulfillment time to assess efficiency across departments. Paying close attention to these KPIs gives you a clear understanding of what’s working and what isn’t.
With abundant, actionable data, you can make well-informed decisions to optimize operations and stay ahead of market trends.
Business efficiency FAQ
What is the meaning of business efficiency?
Business efficiency refers to how effectively a company uses its resources—such as time, labor, and capital—to produce maximum output with minimal waste.
What is an example of business efficiency?
An example of business efficiency is using an automated marketing tool to send sales promotions to your email mailing list. Automation frees human workers to tackle higher-value tasks.
How do you measure business efficiency?
You can measure business efficiency using metrics like process automation rate, inventory turnover ratio, and customer satisfaction.
How can a business improve its efficiency?
A business can improve its efficiency by streamlining operations, adopting automation tools, and seeking ways to optimize resource use and reduce waste.
