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Measuring business success

· April 17, 2014

How many people spend their money with you and how much they spend—that’s the true indicator of business success.

Forbes Global 2000 is a list of the world’s biggest public companies. The way Forbes ranks each business is by adding up the scores for four equally weighted metrics—sales, profits, assets and market value—and compiling a composite score for each company.

This is an overkill and can be completely misleading.

The only metric that matters is sales. More specifically, the share of market and the share of wallet. How many people spend their money with you and how much they spend—that’s the true indicator of business success.

By the way, Fortune—the biggest competitor of Forbes in business rankings—gets it right. Their Fortune 500 list is ranked purely on the volume of sales.

At the same time, Fortune’s or Forbes’s, none of the lists matter. Not even a tiny little bit. It’s because any “pissing contest” among companies can be meaningful only if they are in the same market. There is no point comparing non-competing businesses, because the amount of money spent by customers varies widely between individual markets.