Any business owner who isn’t using benchmarking in their business is missing out on valuable information. But what should you be benchmarking and how do you do it effectively?

Key Take Aways about Benchmarking

• What is benchmarking and why should you be doing it in your business?
• What questions can benchmarking answer for your business? 
• Not all benchmarking strategies are the same. Each one comes with its own benefits and challenges.  Discover 7 different benchmarking strategies and when and how you can use in your business.

Approx. time to read: 6 minutes

Have you ever thought about any of these questions?

1. How is my competitor down the road able to charge less than me? (Or able to charge more and still have more customers?)
2. Is my business fully protected against risk?
3. Which forms of marketing should I be using?
4. How much should I be spending on marketing?
5. The marketing strategies I am using aren’t delivering results I expected – am I doing them wrong or are they the wrong strategies or is this “normal”?
6. My sales conversion stats are around 50%, is this normal, low or high for my industry?
7. Are my costs too high? How do I know? What can I do about it?
8. What sorts of technology should I be using in my business?
9. What do I need to do differently to get better results from my staff?
10. Why are some of my franchisees achieving better results than others?

If you have then benchmarking can help provide you with the answers plus the answers to many other burning business questions.

Put simply benchmarking involves comparing one’s business processes and performance metrics to industry bests and best practices from other businesses both inside and outside your industry.

The most successful businesses implement a range of benchmarking strategies on an ongoing basis to ensure that they are operating as profitably and effectively as possible to stay at the top of their industry and niche.

Whether you’re running a hotel chain, a printing franchise, a restaurant, a manufacturing business, a medical practice, a child care centre, a legal practice or a mortgage brokerage, no business is too large or too small to benefit from the enormous opportunities for improvement that an ongoing benchmarking process can provide.

However not all benchmarking strategies are the same and each comes with its own benefits and challenges.

Internal Benchmarking

Internal benchmarking is a comparing business performance and processes either to other similar processes within the same organisation or to historical results and processes.

Typically these fall into three main categories:

Performance Benchmarking

Performance benchmarking examines a businesses’ own internal results and sets benchmarks based on either average or “best” results for that business.  Performance each month or each year is then measured against these benchmarks.

Performance benchmarks are most commonly used in business planning and goal setting and in staff performance management.

Examples of performance benchmarks include:

• Productivity figures
• Sales numbers
• Financial year profits

Functional Benchmarking

Functional benchmarking examines how things are done across different parts of an organisation. Most franchises and many larger businesses with multiple departments or offices undertake some form of functional benchmarking.

Examples of functional benchmarks include:

• Customer service processes
• Marketing strategies
• Use of technology
• Staff training procedures
• Customer service systems

Operational Benchmarking

Operational benchmarking examines the results or outputs of an individual franchise, office or department’s operations.

Examples of operational benchmarks include:

• Productivity rates
• Profit margins
• Manufacturing or delivery times
• Staff turnover
• Customer complaints

 Operational benchmarking needs to be examined in the light of functional benchmarking and vice versa. After all it’s not much help knowing that Franchise A is 20% more profitable than Franchise B without understanding what they are doing differently to achieve the greater profitability.

External Benchmarking

Industry Benchmarking

The first and most commonly understood form of external benchmarking is industry benchmarking. Industry benchmarking enables a business to compare their business performance metrics against publicly available industry benchmarks.

Industry benchmarks can be obtained from the Australian Taxation Office, your business or industry association or your business accountant or business consultant.

Examples of industry benchmarking figures include:

• Cost of sales as a percentage of turnover
• Cost of labour as a percentage of turnover
• Cost of rent as a percentage of turnover

Industry benchmarking is one the easiest forms of benchmarking for most businesses to implement as the numbers are widely available however it is also amongst the least useful as knowing that your business has higher operating costs than a comparable business in your industry doesn’t tell you anything about why, what to do about it, or how to fix it.

Competitive Benchmarking

Competitive benchmarking is a direct competitor-to-competitor comparison of a product, service, process, or method. You compare your performance with that of your direct competitors. Getting the information you need can be a challenge (please stay legal here… we’re not talking about industrial espionage.)  but done ethically you can still get great insights into what your competitor is doing to realise the results they are achieving.

Examples of competitive benchmarking include:  

• product oriented reverse engineering where an organisation buys its rival’s products and studies them in order to compare them with its own products
• Service comparisons – many companies employ mystery shoppers in order to experience their competitors service delivery processes
• Price, and features and benefit comparisons. It is very common for businesses to compare pricing and features with their direct competitors in order to be competitive in the market place.
• Production method and cost comparisons.

Best Practice Benchmarking

Also known as generic or process benchmarking.

As the names suggests Best Practice Benchmarking involves identification of best practices across generic functions, processes or operations, identifying the most effective operating practices from other businesses that perform similar functions.

Best Practice Benchmarking is effective across the full range of generic business operations: branding, marketing, sales, operations, financial management, technology, human resources, risk mitigation and strategic planning.

The Better Business for Good Company BIPlan System® is an example of Best Practice Benchmarking.  Developed by a team of small business specialists the BIPlan System enables every small business to benchmark their business against  over 200 individual benchmarks covering areas as diverse as brand identity, financial management, management of people and risk, customer relationships and environmental impact. Each item is important in their own right, some take longer to implement than others, but taken as a whole they help a business to become more profitable as well as a good corporate citizen.  

Strategic Benchmarking

Strategic benchmarking involves the examination of global business practice. It differs from Best Practice benchmarking in that it is broader and more future focused. Rather than looking at what is Best Practice now it looks at industry and global trends and attempts to identify what is likely to be Best Practice in the future for strategic or resource planning purposes. Strategic Benchmarking is used by forward thinking organisations in order to develop a vision for the future of the organisation.

Which forms of benchmarking have you implemented in your business? What were the benefits and challenges you experienced?

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