What is performance benchmarking?
Performance benchmarking measures a business’s financial performance, or KPI’s, against industry competitors. This includes analysing profits, cost of goods sold, business value and revenue/expenses. It is used as way to identify performance gaps and growth opportunities.
Performance benchmarking should reflect the industry the business is in to ensure the results are valuable. For example, business’s working in retail would compare cost of goods sold with competitors. Whereas professional services would benchmark areas such as owner’s earnings.
How is it used?
Performance benchmarking should be used annually to establish corporate goals and strategies. Thus, companies that discover they are below the industry average for profit margins can implement strategies to lift these results. Further, businesses can compare productivity with profitability, to review areas such as net profit per working owner and determine the top performers within a team and/or business.
Knowing the industry averages means business owners can set realistic goals and focus their resources on the areas of highest value.
How do you performance benchmark?
When undertaking performance benchmarking, it is vital the business is measured against competitors within the same industry of similar size and location. This gives a true reflection of the business’s position. The number of competitors is also important, as small sample sizes can skew the data to show false positive or negative results. Businesses should also be strategic about which KPI’s they want to benchmark/assess. Reviewing the most relevant metrics will give business owners the ability to make confident decisions.
Gathering all this data can be difficult due to competitors not wanting to share financial records. Whilst there is high level records on ABS databases, the best way to compare a business is with detailed business data.
That’s where we come in. Our benchmarking tool can compare your business against hundreds to thousands of like businesses, to give you the most accurate results.
Contact us today to find out more about benchmarking your business, or your client’s business.