One of the vital aspects of running a successful business is to conduct a periodical assessment of your business by comparing your performance with your competitors. Even as you’re seeing steady growth in your business, it’s imperative to measure its performance against the industry standard in order to determine how well you’re doing and explore your growth potential. Also known as benchmarking, it’s a strategic approach to taking stock of your business and optimizing the hidden potentials to get the winning edge over the competitor.
While some businesses think benchmarking is a complicated process, in reality, however, it’s pretty simple. All you need to do is find data from industry sources and see how your business stacks up against the industry metrics.
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If you’re a small business, consider the following aspects for benchmarking.
Focus on Key Business Drivers
Your key business drivers are critical to the growth and success of your business. For example, if you’re offering a service, then customer relationship is the key business driver for you. Likewise, if you’re a manufacturing business, production line-up speed or logistics are key components of your business. Remember that the key business drivers may vary from business to business and sector to sector. Therefore, you should choose a sector or business having the closest resemblance to yours.
Pick Your Benchmarking Partners
Once you have established the key business drivers for your business, it’s time to choose a firm for benchmarking. Consult your local trade association or local business link to find suggestions on whom you should benchmark against. You want to choose firms that share close similarities with your operation, e.g. size, location, annual turnover etc. You can also target firms in other sectors if you wish to measure areas in which you want to excel. This will help you establish their unique approach and replicate it to outperform the competition.
Compare Strategic Objectives
Analyze the strategic objectives of the firms you’re benchmarking against. Establish their key business drivers and what they have done differently to improve their performance. Can you replicate their strategy to become more productive and successful?
Weigh Your Business Components
Depending on the sector and firms you’re benchmarking against, you can compare the performance potential of your business based on a number of yardsticks such as operational efficiency, resource allocations, operational costs, and sales. For example, you can assess the benefits your business has received versus the competition in terms of new production techniques or quality control mechanism.
Similarly, you can also assess the performance of the benchmarking partners based on the allocation of resources. For example, you can see whether they are using resources, i.e. employees or equipment better and how that’s making a difference to their overall productivity and growth. Also, see if they have allocated resources to any new areas that you have never considered before, i.e., new sales strategies, online promotion and marketing techniques.
Further, consider comparing your costs against the benchmarking partners to establish the industry norms. For example, you can compare different costs such as utility bills, wages, and investment in R&D to see if you’re spending more or less than the average industry benchmark.
There’s one more area which can give you more robust insights into assessing your performance against the industry standard – sales per employee. If the sales per employee are low, investigate the reason behind it and try to fix areas responsible for it. This will help you focus on the area you didn’t think was important. For example, a low sales per employee may also mean you’re pitching to the wrong market.
Compare Profit Margins and Customer Service Quality
When every other aspect of your business has been measured against the benchmarking partner, it’s time to dive into the most important component of your business – profit margins. Be sure to compare both gross profits and net profits of your business with that of your benchmarking partner to determine why your profits are less or more than the average within your sector. This will help you establish areas that need your immediate attention in order to improve profit margins.
Benchmarking customer service standards is becoming an indispensable practice in the modern day business since customer service has emerged as a deciding factor in both customer acquisition and retention. By comparing your customer service standards with that of your benchmarking partner, you can determine the weakest link in the customer support mechanism and fix the loophole to improve customer satisfaction and loyalty.
If you don’t want to seek a benchmarking partner, there are many other alternatives for benchmarking. You can use many readily available industry reports or directories which list revenues and growth figures. Similarly, if you are ready to invest in marketing research reports, you can gain access to a research data for benchmarking purposes.