In the business world there are a million different ways to measure success. In essence, what makes your business a success depends on your goals. So how do you measure your success? Its actually much simpler than you may think, using a process called benchmarking. Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests and/or best practices from other industries. In fact, you should first be introduced to benchmarking in the earliest stages of your business, the business plan writing process, and more specifically the competitive analysis section of your plan. It is incredible how much you can learn from studying and analyzing your competitors, and a significant amount of research should be dedicated to doing just that.
In order to complete the competitive analysis section of your business plan you will need to gather as much information about your competitors as possible. The more information you are able to gather, the better the conclusions you will be able to draw from your research. The tricky part of benchmarking is deciding which factors actually apply to your specific market and your specific point in time. You will want to analyze not only the similarities between yourself and the competitors but your fundamental differences as well. This is a great opportunity for you to analyze your strengths and weaknesses compared to the competition. If you do this honestly and accurately, you will give yourself a better chance to improve.
Benchmarking is an effective tool to measure success if your business is already operating. Your goals should be clearly laid out in your business plan, and you should have a clear set of key metrics that you use to gauge success. Compare your list of key metrics such as gross revenue, net profits, profit margins, revenue growth, accounts receivable time, market share, liquidity, and turnover ratios to other industry participants and see how you are doing. This will give you a good idea of where you stand as compared to the industry average, and let you know where you need to improve as well as where you are already excelling.
Many business owners and people writing business plans do not thoroughly execute a benchmarking study because they think that they do not have access to their competitors numbers. This is probably because they havent looked for this data. Here are a few ways to track down some of the data that will be beneficial for benchmarking.
- Ask other business owners- Form alliances with similar businesses to yours, but located in other cities, so that you don’t compete directly. If you can agree to share financials with one another then you have a legitimate source for really good information.
- Ask an industry association- Industry groups often conduct polls of their membership in which business owners anonymously disclose information about their financials. While these won’t tell you how individual competitors are faring, industry statistics often give you good general comparison figures on how a typical business in your industry is doing.
- Buy or find market research- If you’re willing to spend, there is market research available on almost every industry segment.
Benchmarking is a very important process when comparing yourself to the rest of your industry. Do as much research as you can and dig as deeply as possible in order to find out the most information that you can about your competitors. Often times the answers to your problems are out there, you just have to spend the time and energy to find them.
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