How to Improve Your Business the Smart Way Through Benchmarking
All business owners would like to make lots of money and be very successful.
Unfortunately, this doesn’t happen all by itself. Like so many other things in life, it usually takes hard work.
SMART business owners are on the lookout for ways to make improvements all the time. Often they have a favourable impact on their business, giving them a competitive edge.
One of the best ways to make improvements is to benchmark.
Large organisations have been benchmarking for many years. But smaller business owners often overlooked this practice. There is no logical reason why small businesses can’t reap the benefits of benchmarking.
What is benchmarking?
Benchmarking is comparing your performance against someone else’s. The value in benchmarking is adopting and adapting better methods or procedures. The act of benchmarking is natural, and people do it all the time without realising it.
When a golfer asks another golfer for help with his swing, or grip on the golf club, that person is benchmarking!
Benchmarking can help your business assess new opportunities for improvement. There are many benefits of benchmarking including:
- Identify and prioritise specific areas of opportunity
- Understand your customers’ needs better
- Identifying your strengths and weaknesses
- Set goals and performance expectations
- Track your performance
- Understand your competitors to become more competitive
Benchmarking may sound intimidating, but it is a very logical process.
All you need to do is assess your performance to identify any strengths and weaknesses. Then compare your business with similar businesses to see if they achieved similar or better results. Then you analyse to determine whether any changes will improve your business.
What can we benchmark?
You can benchmark all aspects of business.
This can include KPI’s, such as profit margins, employee costs, or stock turnover rates. Benchmarking can also look at marketing practices, or product or service ranges.
Choosing what to benchmark depends on the industry of the business.
Each business needs to assess its performance and determine what needs attention.
What matters most is that you realise you need to make the most of your business. You then need to be willing to make an effort to start the process.
Where do you find benchmarking data?
Many industry associations can provide access to industry-specific benchmark data. This data will give you an understanding of what is driving success in your industry. Understanding how you can apply this information will help you in making informed decisions.
The ATO provides a database of benchmark information, covering more than 100 industries. The data comes from over 1.4 million SMB’s, based on their tax returns and activity statements.
Some banks, franchise groups, and universities also provide financial benchmark information for free.
6 Steps to Successful Benchmarking
Use these steps to benchmark your business against your competitors:
1. Identify what you’re going to benchmark
Start with targeted and specific questions. They should be specific, and measurable using qualitative or quantitative research. Remember that these should be part of your business strategy. It’s a good idea to do some market research if you haven’t already.
2. Identify your competitors
Write down who your competitors are. Usually, you benchmark within the same industry. Identify effective tactics used by your competitors, along with better performance.
3. Look at trends
Look at recent statistics to analyse how fast your industry is moving. Look at how you can plan to keep your business in tune with customers’ needs.
4. Outline objectives
After interpreting the results of the analysis, you should establish some goals. These should be attainable, concrete, and in line with your business strategy. Make sure you also list all of your goals in your marketing plan.
5. Develop an action plan for your objectives
Define specific, concrete actions you need to take. Detail the tasks involved and include dates and people responsible for each task.
6. Track your results and develop an action plan
Track the results of the benchmarking and use the action plans.
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Do you want to learn how to read you business numbers and get you “financial” act together? Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.
Amanda Dyason, Founder of ProfitSmarts
We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.
ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.