For first-year business owners especially, it’s easy to get caught up in the details of your internal processes and lose sight of the bigger picture — like knowing how your business stacks up to the competition. It’s not enough to know that sales are up and you’re turning a profit. If you don’t know where your business stands, how can you possibly improve and grow it? That’s where benchmarking can help. Here’s a look at what it is and how it can become your competitive advantage.
What is benchmarking?
In a nutshell, benchmarking allows you to measure your business’s performance against other businesses by comparing key metrics such as time, quality and cost. Because this process shows you whether your performance is stronger or weaker than your competitors, it can give you valuable insight into what you need to fine tune in order to succeed.
Deciding what to measure
With oodles of metrics to choose from, how do you know what to measure? A good rule of thumb is to focus on the key drivers that are relevant to your business’s goals and show how your business is doing. A call center, for example, might track how quickly agents are answering the phone, whereas a manufacturing business could track production line-up speed. According to Simplicable, the common types of business benchmarks include:
- Financial (i.e., net profit margin, gross margin)
- Costs (customer acquisition cost)
- Customer (customer loyalty and retention, customer satisfaction)
- Employees (employee turnover and satisfaction)
- Productivity (labor productivity, revenue per employee)
- Products and services (product performance comparisons)
- Brand metrics (brand awareness)
- Quality (product ratings)
- Customer service (first response time)
- Sales (sales revenue, sales growth year-to-date, market share, churn rate)
- Operations (cost per unit, process cycle times)
- Facilities (metrics related to the management or efficiency of facilities)
- Risk (levels of risk exposure)
- Sustainability (waste, community impact, resource efficiency)
Benchmark with the best
Once you have a clear idea of what you’d like to measure, it’s time to pick your benchmarking partners. Choose top performers in your industry who are of a similar size and who excel in areas you want to measure. What makes them the best? How are they differentiating themselves in the market? How do they overcome challenges?
Then expand your scope by looking beyond your industry at other successful companies. What lessons can you learn from them? For example, an airline could use a customer satisfaction survey to see how its first-class customer service compares to a luxury hotel.
Keep in mind, you may have to find different benchmarking partners down the road as customers’ needs and expectations change. Your local business trade associations should be able to suggest benchmarking partners.
Mining the data
To get information about benchmarks directly from the source, plan to ask your competitors questions and tour their facilities. You can also take advantage of the online tools offered by SCORE, the Business Best Practice Network (BBPN) and other business websites. Handy tools such as SizeUp.com and benchmarking surveys make it easy to generate customized, accurate benchmark reports free of charge. And if you’re willing to pay a fee, you can get robust data from commercial benchmarking businesses, such as Consumer Reports.
Measure and improve
Look at the key differences between you and your benchmarking partners. Are you spending more or less on rent, utilities or bills than the average industry benchmark? Find out why. How do your sales per employee compare? If there’s a lag, you’ll want to investigate. Identify what’s working and put it into practice to optimize your business.
Don’t try to change everything all at once. Focus on one factor at a time and determine whether the benchmarking improved things or not. Then revisit your benchmarks and adapt them as needed.
The bottom line
Is your business thriving or just squeaking by? You need to know where your business stands right now in order to innovate, adjust and take it to the next level. Benchmarking on a regular basis will show you just what you need to accomplish to stay competitive, boost your productivity and grow your profits.