Rather than being a pointless exercise in data analysis, benchmarking can help you to identify areas where you can make changes and make your firm more profitable. It gives you an insight into different ways of working, which can give you an edge over the competition
To benchmark your business, start by deciding which areas you want to compare. Select those that are central to achieving your key business objectives, such as finance, sales or margins. For example, you might want to assess your business costs against industry norms.
What should you benchmark?
Look at the mechanics of your business. How well are you using your technology, for example? Are other businesses benefiting from new ways of doing things? Think how other firms’ objectives and processes can benefit your business.
Avoid over-complicating your approach - stick to one or two key indicators to benchmark. The more focused your research, the more useful it’s likely to be.
Benchmarking indicators include:
- Costs (eg utility bills, wages, R&D costs, etc).
- Key performance indicators (eg sales per employee, gross profit margins etc). Some indicators may require analysis, such as customer satisfaction levels or effectiveness of staff training.
- Processes (eg stock management, quality control or customer service).
- Strategy - you might be able to learn strategic lessons from other organisations.
Finding benchmarking information
You need to decide against which businesses you will benchmark your firm. At a basic level, you can compare your figures against published industry norms or data available from an advisory service such as Benchmark Index.
It is worth comparing your operations with firms outside your sector who excel in areas you want to measure. Analysing their approach and adapting it could help you overtake competitors.
You can also join forces with other businesses so that you can both carry out comparisons on an ongoing basis. It is vital that you come to an arrangement with a business (or businesses) of a similar size and structure - and one with similar objectives. Your trade association or local business support organisation might be able to help you find such a partner, or recommend an advisor or other service in your sector.
It’s a good idea to draw up a benchmarking agreement with your partner. This should include the information you want to exchange and how it will be used. Never ask for information that you are not prepared to share in return.