Your business is doing well, and your company is doing well. But how do you know if you’re doing the right thing? How do you stack up against other companies? Are other companies doing things that can be transferred to your business and help you meet or exceed your goals more quickly? Companies are constantly striving to improve their performance, whether it’s implementing more efficient processes or increasing sales of products and services. But how do you define business success? Through a business benchmarking process, any company can compare itself to standards and develop a consistent way to measure performance.
What is Business Benchmarking?
Benchmarking is the process of selecting key performance indicators that can be used to compare your company to others. Financial ratios are just one of many benchmarks. There are also more general indicators such as revenue per employee and productivity per hour worked. Others are specific to your industry.
- For example, a restaurant might track sales per table, and a storage company might be able to calculate cost per square foot.
- But regardless of your type of business, financial ratios are a simple and effective way to see how you’re doing in terms of productivity and cost control.
- They can tell you if you have too much debt, too much inventory, or are behind in collecting receivables.
- Once you know how your business is doing, you can start making improvements and get a return on your investment.
- Many companies use these methods to get a complete picture of their performance based on a series of indicators.
Internal business benchmarking:
Self-benchmarking can help measure performance trends in almost any area of your business. For example, suppose you want to measure the success of a new sales initiative. In that case, you can compare sales after the enterprise with sales before the industry to see if the new initiative made a difference.
- You can do this using several indicators, such as increased time spent on the website or decreased customer complaints.
- Comparisons can also be made between similar sections. Year-over-year comparisons can help you assess the growth and stability of your business.
Competitive business Benchmarking:
It allows you to see how your business stacks up against your competitors. In this case, the only way to do this is to compare publicly available metrics such as sales, social media reach, and SEO. Good social listening can give your insight into what other businesses may be reporting.
Functional business benchmarking:
It compares your business with companies considered best-in-class or industry leaders and identifies areas for improvement. It can also compare your company to industry averages. Some industries are inherently riskier or have slower sales cycles than others. Comparing your company with one or more companies in the same industry will give you a more accurate picture of your actual performance.
How Does Benchmarking Benefit Companies?
Okay, but is the benefit of business benchmarking just knowing how your competitors are doing and how inefficient you are? In short, not necessarily. After all, if you want to start a business, you don’t have the processes in place yet, do you? If you are in this situation or experiencing any of the situations discussed in the previous point, you should consider setting benchmarks. Understand the main benefits:
- Identify areas where your company needs to improve.
- Gain knowledge and understanding of market trends.
- Learn about the success of market-leading competitors.
- Plan the development of new growth strategies.
- Explore new ventures that are benchmarks in the same industry as yours.
- Improve your processes.
- Inspire your team with the results achieved by other companies.
- Reduce the cost of functions that are not working.
- Increase profitability.
- And more.
While the benefits are many, they need to be handled carefully. You may come across a great idea, but it may not suit your current business. This means that copying a competitor’s successful process can be detrimental to your own business.
- It is also the wrong foundation. A little research and analysis will show that this is the starting point.
- So study hard, filter out the most relevant information, and plan very carefully.
- Think about what results you want to achieve in the short, medium, and long term.
- Ideally, this should be done without losing the organization’s values, mission, vision, and culture.
What are the Steps in Business Benchmarking?
As you already know, benchmarking is an ongoing study. This can be done by looking at companies and entrepreneurs you admire or analyzing your competitors. Either way, there are five critical steps to business benchmarking.
1. Research plan:
In this step, you need to answer the following three questions: What is the benchmark you are looking for? Who do you want to compare your business with? What methods will you use to collect the data? The planning phase needs to be well prepared so that everything else works properly.
2. Analyses the data you have studied:
This is the analysis stage, where you use the information you have collected to identify your competitors and companies you admire more than yourself.
3. Implement new practices:
After analysis, it is essential to consider how you can apply the best practices you have gathered to your own business. Present the results of the business benchmarking exercise to the whole company, and together, consider how you can incorporate what other entrepreneurs are doing into your own daily work (without copying them, of course).
4. Action:
Now, it’s time to put it into practice. Put your plan on paper and put everything you have analyzed into practice.
- Be sure to measure the effectiveness of each new action and check the results each time you take further action.
- Also, remember to improve and adapt the measures as needed, as each process needs to be adapted to the reality of your business.
5. Maturity:
The maturity stage only reaches when all the measures have worked well, i.e., when the new processes are already working and producing good results.
Author Bio
Sarah Noah Liam is a 28-year-old Software Management person who enjoys programming, Employee Monitoring Software, and screen recording. She has a post-graduate degree in Computer science. She was raised in a happy family home with two loving parents.