In some industries it’s absolutely vital to know how your business compares to others, while in others it’s not so crucial. Business Benchmarking provides a way to compare your business against others and identify areas where you can improve and stay competitive. It involves measuring the performance of your business against a similar-sized competitor in your industry and is a useful way of better understanding your business potential. It gives you essential information about reducing costs and improving operating efficiency. It allows you to assess the productivity of your business based on how many employees you have, identify opportunities, new ideas, innovative practices and highlights ways to be more competitive.
To get the best results from benchmarking, you should carefully consider who you want to measure your business against. Start by identifying the areas of your business that you want to benchmark, and then seek out businesses that perform consistently well in these areas. These businesses may not be even be competitors or operate in the same industry. It’s possible to compare your business against a range of benchmarks including: competitors, industry standards, industry leaders, similar-sized businesses in your industry or even similar-sized businesses in a related industry. Once you’ve decided who, there are several ways to find data that you can use to benchmark your business that doesn’t require approaching a competitor directly. You can identify industry leading businesses through word-of-mouth, reading published surveys, industry and business publications and searching the internet. Depending on your industry, a range of benchmarking data is available online. There is widely published information available on salary surveys and other industry norms such as financial ratios. You could also contact your relevant business or industry association and ask them to provide any information they have about performance standards for your industry. They’ll have detailed information that you can use to research and compare your business’s products, services and practices with your competitors.
You could also buy financial benchmarking data from commercial benchmarking businesses. With this you can compare your business’s income, expenses and profitability against your industry average or examine the financial data of similar businesses. But always make sure that the data you receive is accurate, up to date and value for money. The Australian Tax Office’s small business benchmarks are also a good guide to help you compare your business’s performance against similar businesses in the same industry. The benchmarks are calculated from income tax returns and activity statements from over 1.3 million small businesses and account for businesses with different turnover ranges across more than 100 industries. Financial benchmarking data will help you to see how much you earn and how much you spend on certain expenses compared to other businesses. You may discover that you are spending too much on rent, inventory costs or your income per employee is lower than the industry average.
Once you understand where you should make improvements, you are ready to develop a plan to put changes in place. Benchmarking is a process of continual improvement and once you’ve implemented changes, you should benchmark your business again to see the results. This will tell you what is working and where you can still improve. If you are considering buying a business, benchmarking is an essential resource. It can help you to measure the past performance of the business to see how it performed against industry averages. The information you gain from benchmarking makes it easier for you to decide if the business is a good buy and the purchase price is reasonable. When benchmarking you should always think creatively about ways to improve your business. Ask staff for their input and study other similar businesses to see how their processes work. You should implement changes based on observations and research then evaluate the results of the changes you’ve made. Finally, review whether you have the business skills required to improve your business and if not, then you can either up-skill your existing staff and yourself, or seek those skills externally by recruiting new staff, contractors or by outsourcing specific tasks.