Setting business benchmarks and how your accountant can help

Know where you are to hone where you’re going

Improving business performance requires an eagle eye on financial, operational and industry levers. Business benchmarking reveals which levers to pull, when and how far – for powerful results.   

Benchmarking for better business

Surviving, let alone thriving, in today’s tumultuous economic climate requires businesses to spend more time working on their business than in the business. But when it comes to working on your business, what exactly do you focus on?

Perhaps you’re wondering how your business is performing versus your competitors? Are your manufacturing costs too high? Are you allocating enough (or too much) budget to marketing? How do your customer response times compare?

With so many performance levers, how do you know which needs pulling first?

By benchmarking your business.

To drive the most powerful results, business benchmarking requires deft hands to effectively hone your focus, improve performance and increase profits. A good accountant can assist and add a lot of value to the process.

But first, let’s explore the ins and outs of benchmarking for better business. 

Business benchmarking 101

Benchmarking is the process of comparing performance metrics and business processes to comparative measures to assess a business’s performance and identify areas for improvement. Quality, finances and time are the most commonly benchmarked performance indicators, but comparative measures differ depending on the type of benchmark.

Typically, performance indicators assessed through the process of benchmarking fall into the following categories:

• Financial: operating costs, gross and net profits, yield per customer, sales trends, marketing spend as a percentage of gross revenue, etc.
• Operational: process design, technology usage, resource optimisation, policy implementation, automation, employee engagement, etc.
•  Industry: customer wait times and satisfaction, average cost per conversion, seasonal sales trends, product functionality and life cycle, etc.

How benchmarking can benefit your business

Done well, business benchmarking delivers many benefits including:

• A plan for performance improvement: shine a light on underperforming areas and gain actionable insights into how those areas can be improved for increased efficiency, lower costs and greater profitability.
• Long-term goal setting: put accurate baselines in place to set realistic goals that inform long-term strategic planning.
• Thorough competitive analysis: understand how your competitors operate to identify best practice and innovations for increased performance.
• Identify new trends and opportunities: understand consumer trends, market changes and your growth potential.

How to set business benchmarks

Effective benchmarking starts with the end in mind and sees it through with a carefully considered step-by-step process. Here’s how to run a benchmarking project from go to whoa:

1. Set your objective: Begin by identifying what you want to measure. Clearly define the activities or KPIs you’re benchmarking and the key metrics you’ll use to complete your analysis. Collect your data: Identify how you’ll collect data for the best results. Many internal systems will have their own analytics. For external data, consider agencies that collect data on behalf of trade associations and industry groups. Ensure the data is accurate, complete and covers a long enough period to illuminate reliable patterns.
2. Analyse the data: Analyse your data in an easy-to-digest format to identify gaps in your performance versus other departments, businesses or industry benchmarks. For large data sets, it may be worth seeking a professional analyst.
3. Create an action plan: Your plan should address gaps in performance with measurable, timed targets to improve your effectiveness. Actions should be specific and results focused with planned reviews to assess your progress.
4. Monitor your progress: At regular intervals, check your progress against the defined goals in your action plan. If you’re meeting your goals, it means your plan is succeeding and you should continue. If not, you may need to review your plan and take a new approach.

Don’t trip into these traps

A good accountant can also help you avoid these common pitfalls:

• An overreliance on averages: while averages can provide useful insights, they ignore unique aspects of your business which can skew benchmark results.
• Ignoring changing market conditions: external factors like market conditions, regulatory changes, and technological innovations can impact the validity and applicability of benchmarking data. Make sure you consider the data in a broad context.
• Ignoring qualitative data: while the numbers provide useful insights, they do not capture all aspects of performance. Enhance your benchmarking by considering qualitative factors like customer satisfaction, industry dynamics, management styles and innovation.

Do it right and reap the rewards

Benchmarking shines a powerful light on how your business is performing today to plan a better tomorrow. Of course, it’s only of value if your results are accurate and you use them to implement meaningful action to improve your business. To nail your benchmarking and the action plan that follows, it pays to get advice from an experienced accountant who can guide you through the process.

Benchmark your business for success with expert accounting advice. 

Ask for a callback from Business Growth HQ.