No doubt you meticulously report on profit margins, revenue and expenses, and you know your financial situation from one month to the next.
But do you know how your business compares with your competition? Do you ever carry out business benchmarking? It’s a valuable tool you can use to assess how you sit in the marketplace.
What is business benchmarking?
Business benchmarking provides you with a means to compare your business against another in the same industry.
With a small business, there are a number of opportunities to take advantage of independent benchmarking studies through different industry groups, and these will allow you to see how you compare, what you’re doing well and how you can improve. Comparing your business is a valuable way to understand how you’re performing and realise your potential.
Benchmarking helps you identify areas where you can improve. These could include:
- Identifying your strengths and weaknesses
- Understanding your customers’ needs
- Setting goals and performance expectations
- Understanding your competitors
It’s a tool that is readily available, but is not used as widely as it could be. Here are some ways you can successfully undertake benchmarking and improve your business’ performance:
How to benchmark your business
To compare your business against another, you’ll first need a benchmarking report. There are many benchmarking tools, indexes and software applications that provide these reports, so hunt around and find one that suits your business. Then:
- Decide what you’re going to benchmark
Focus on your key business drivers, and pick something that’s targeted and specific. These will vary for each sector and business. For small businesses, client satisfaction is likely to be a key business driver.
- Decide who you’ll benchmark against
Write down your main competitors, and look for effective sales tactics they are using. Also, make a note of areas where their business is performing better than yours. For a fair comparison, choose a business of a similar size to yours, with similar objectives.
- Look at objectives and trends
Statistics will show you how fast your industry is moving and how you can plan ahead to keep your business aligned with the needs of your customers. Also, look at strategies and trends your competitors are using. Do their high standards give them a competitive edge, for example? Do they have an online sales channel that would also work for your business?
- Look at the efficiency of your business
How do the mechanics of your business stack up? Are your processes and systems streamlined and tight? How effective are they in bringing in new leads and making a sale? Are other businesses using new methods of doing things while you’re stuck in old patterns?
You can also assess the use of resources in your business. Do you have fewer employees, or more, than the average business? Do your competitors use equipment you don’t have? Are they spending more on marketing than you?
- Look at your expenses and sales
Take a look at your expenses, such as wages, marketing and bills. If your costs are higher than the industry average, perhaps you need to cut back. Look at your sales per employee. If they are low, do you need to provide more training? Or are you pitching to the wrong market?
- Develop an action plan for your objectives
Once you’ve looked at all the various areas of your business, you can see what’s working and what isn’t. Define some actionable steps that need to be taken and detail the tasks involved in each step. Outlining a plan with some clear objectives will keep you focused and set you on the right path.
- Monitor your results
Once you’ve been following your plan for a few months, you need to continuously monitor your results to ensure your action plan is consistently applied and that you’re making the right kind of progress.
Benchmarking your business will give you a true understanding of what’s happening and whether you’re improving. The new perspective you’ll have on your business will give you an edge over other businesses, so be sure to use it to your advantage.
James Steer is the CEO of Commission Flow, a business that provides cash flow management for real estate agents.