Heard of benchmarking but not sure what it is?
Benchmarking is a process of comparing businesses across a range of metrics in order to enhance efficiency and ultimately profitability. In other words, by finding out how you rate against similar businesses, you can identify areas for improvement.
For example, benchmarking might reveal that your gross margin is lower than the average in your industry. For every dollar of sales, your gross profit might only be $0.50 whilst your competitors on average make $0.55. Over a year and several hundred thousand dollars of turnover (or millions even) that is a huge difference.
Now that you are armed with this knowledge, you can look to understand why. Is it that your prices are too low? Or could it be that your competitors are getting a better deal from your suppliers? Maybe your industry has changed and there are new lower cost/higher margin products available? Is there an add-on or complementary product that you aren’t stocking or selling?
Then, once you understand what is driving your result, it is time to consider what actions you need to take to improve your result and in turn your business.
Is it time to consider new suppliers? Do you need to update your stock lines or drastically change your product mix? It could be necessary to do some research on what your competitors are charging. And possibly it is time to catch up on the news in your industry, subscribe to a trade magazine or attend a conference.
Benchmarking can yield startling information or may confirm what you already suspected. You could be surprised to find that your wage bill is considerably higher than your similar sized competitors or you could become certain you’re your rent is too high when compared as a percentage of turnover to that paid by other businesses in your industry. competitors , or your wage bill, could be considerably higher compared to other businesses in your industry.
It should be said that Benchmarking can have limitations, for example small, niche businesses and markets can be difficult to source information for comparison. And sometimes Benchmarking will throw up information that is unsurprising to the shrewd, experienced business owner.
The commercial world is competitive and constantly changing. Benchmarking, used wisely, can help you understand optimise your business’ performance. Let Capo & Co’s Benchmarking give you an edge on your competitors.