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 Industry sector
Other businesses in your sector will have many characteristics in common with you, so comparisons can teach you about work practices in the industry that may lead to a competitive edge for your business.
You can compare to an equivalent business, a larger business or even a hypothetical 'ideal' business for the industry.
Business size
Comparisons with other businesses of the same size as yours can be just as useful as industry benchmarks. Benchmarking other sole traders, for instance, may show you a more efficient way of handling the accounts or keeping in contact with customers. Whereas comparing to a bigger business could show better staff management practices.
Business operations
Despite being in different industries, there may be other businesses operating in a similar way to yours. For instance, an online soap shop compared sales results with an online book shop and found their sales were much less. Further checking showed that the book shop offered credit card payments; by introducing credit card facilities, the soap shop quickly increased sales.
Benchmarking characteristics
You can benchmark your business for a variety of characteristics, depending on your industry and current needs. It can be limited to one area of your business (e.g. customer service) or be a general overview.
Some common benchmarking characteristics are:
- sales and turnover
- products and services
- profitability
- overheads
- key performance indicators
- quality control processes
- pricing structures and fees
- research and development costs and achievements
- number of customers
- staff turnover
- customer service standards
The results are a useful tool for improving practices. For instance, by comparing sales figures with a competitor, you may find that your sales staff need more training on your products. Or by looking at a dentist's reminder service, you may be able to increase the number of customers returning to your business.
Using benchmarking
Benchmarking can be done by yourself or you can use an external benchmarking program, or a combination of the two.
Using an external program will save you some time and you will get expert advice, but it will still require considerable input from you and your staff. External programs can be located through trade associations, business support groups and the Yellow Pages.
Benchmarking is of limited value unless you use the results to improve your business. Having seen where there are weaknesses in your business, the next step is to make changes to strengthen those areas.
An external benchmarking facilitator will help you devise an action plan from the benchmarking data.
When analysing the data, factor in any reasons for the differences. Perhaps your products differ from the other business and you would expect to sell fewer pianos than they would sell CDs. Likewise, your website expenses may be more than your competitors because you added a shopping cart facility and they only sell in a shop.
No matter how you collect and action the benchmarking data, the important thing is to do it regularly - once a year isn't enough to gain all the benefits benchmarking offers.
Source: Written from information provided by Business Victoria
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