Business benchmarking is the process of comparing your business’s performance, processes, or products against your competitors or industry standards. Whether you have a new or firmly established small business, here’s why benchmarking is worth introducing if it’s not already part of your business management practices.
You’ve probably heard the saying that you can’t manage what you can’t measure. As a small business owner, the more data you can access about your industry, competitors and trends, the more you can find areas to improve and grow your business.
Benchmarking is a valuable practice for new and established businesses which can help you understand your business and make data driven decisions. Here are some of the benefits of benchmarking and how you might put it to good use in your business.
Streamline your business
Benchmarking compares your business’s actual performance to that of similar business or industry averages. You can access detailed, actionable insights which are useful for both new businesses (for example, if you want to set up a business that stands out from your competitors) and established businesses who want to maintain or improve their market position.
By using benchmarking tools, you can deepen your understanding of what’s happening in your industry – and from there can set achievable and data driven targets for your business. Benchmarking can highlight any inefficiencies and help you to streamline your processes, which could lead to cost savings, innovation or more opportunities to create profit.
Benchmarking as a business tool
While market research data offers general information about an industry, market size, trends and forecasts which can help you understand the broader market, benchmarking is about measuring your business against others. You can use benchmarking to analyse a range of metrics, industry standards and competitors.
Here’s a snapshot what kind of benchmarking data might be useful in your business:
- Financial metrics such as revenue, profit margins, cost of goods sold, return on assets and cashflow.
- Operational metrics including productivity rates, process efficiency, inventory turnover and service speed.
- Customer metrics such as customer satisfaction scores, retention rates and net promoter scores.
- Sales and marketing metrics such as conversion rates, average transaction value and customer acquisition costs.
- Employee metrics such as staff turnover, training hours and employee satisfaction levels.
- Digital performance such as website traffic, online conversion rates and digital adoption rates.
A range of benchmarking data is available for small businesses to access, and the SBDC can provide free access to a range of benchmarking and industry data. It’s important to find data that is relevant to your industry, business size and strategic goals, which is something our free business advisory service can help with.
Benchmarking in action
Used strategically in your business, benchmarking data could help you find opportunities for improvement, set informed targets and drive your business growth.
As an example, a manufacturing business could benchmark its production costs against industry standards. The data might highlight inefficiencies in their supply chain management, so the business owner might then renegotiate supplier contracts and adopt leaner manufacturing techniques. The business could potentially reduce costs while maintaining the expected quality of their products.
Here’s how the benchmarking process might work in your business:
- You might compare your current performance metrics with industry benchmarks to pinpoint specific areas where your business might be underperforming. As an example, a steady decline in revenue or shrinking profit margins could be signs for your business to act swiftly and increase your competitiveness, especially if this data is not mirrored by industry trends.
- You could then quantify the gap between the industry performance and that of your business.
- Analyse the potential causes of this gap by exploring your internal processes, resources and capabilities.
- Once you have identified the likely causes, you could gather both quantitative data (statistics and figures) and qualitative insights (for example by speaking with your team about their experiences).
- You could then develop an action plan and set measurable goals, create targeted strategies and assign responsibilities and timelines for implementing improvements.
Find out more
Discover the full range of free market research and industry data you can access through the SBDC.
For more updates like this one delivered straight to your inbox, sign up for the SBDC small business news.
