The Methods and Problems of Measuring Business Size
The size of businesses always varies because of its nature. Some businesses are operated with a single person, some with less than 10 people while some businesses are operated with thousands of employees. There are a few methods that are used to measure the sizes of these businesses.
Number of Employees
This is an easy method to know the size of any business. By knowing the number of employees, it also becomes possible to compare two or more businesses.
Although there is a limitation in this method as some highly automated firms in manufacturing are producing high output levels with few employees while their profit is huge. It is also difficult in manufacturing units to count part-time workers, their wages and their output.
Value of Output
The size of a business can be calculated through the value of output produced by that business.
Like other methods, there is also a limitation in calculations of the volume and size of the business. For example, if there is firm producing high level and expensive computers which are used in big multinational organizations or computers for special purposes like for graphics, gaming, etc. may have more value of output with less production units while a firm may have more employees and more production facility but sell cheap computers for personal use and earns less so in this type of situation this method can’t give you accurate results after measuring the size of business.
Value of Sales
This method is mainly used while we measure the size of any retail business and particularly when we measure the size of two or more businesses serving in the same category and sell similar products like grocery stores.
Similar to other methods, there are also limitations as it is very difficult to calculate the size of business when there is a difference in the nature of products. A grocery business even having many numbers of customers could earn less than a store that sells luxury and fashion brands.
Value of Capital Employed
In this method, the total value invested in the business is calculated to calculate the size of the business. In this method, there is a similar limitation to the method of the number of employees. In this method, there is also difficult to calculate the business as there is a possibility of investing in different technologies in the same business.
For example, if a business is still using labor-intensive technology and use more machinery and more labor while some other business may use modern technology and more automated machines. This business may earn more as there will be fewer employees to pay. On the other side, the other business which is using labor-intensive machinery will have much more load to pay salaries of workers.
As there are different types of businesses so it is always recommended that there is not any single method to measure the size of businesses. It is better to use at least two or more than two methods to calculate the size of business more accurately.