As a small business, it's hard not to compare yourself to your competitors. When their performance impacts yours, it's only natural. However, while generalised worrying is likely to add nothing to your company, a careful analysis of benchmarks offers insights and opportunity for business improvement.
What benefits does benchmarking offer your small business?
Benchmarking is an opportunity for you to get a feel on how your business is faring in comparison to other similar enterprises within the same location. It can drive essential change, bring new ideas and innovation into the picture, and give you solid goals to work towards.
The different types of benchmarking
Benchmarking comes in two main forms – qualitative and quantitative.
The qualitative version investigates a business's operating practices. This includes areas of the company such as procedures, techniques, morale, and quality. It's the process that is looked at, not the results.
Quantitative benchmarking is all about the performance. Key Performance Indicators (KPIs) are gathered and compared. Sections that are often looked at include sales, marketing, and operating costs.
Depending on what you want to gain out of benchmarking, it's possible to make the focus narrower to gain more specific insights. For example, if it's your business's cash flow efficiency that concerns you, there's no pointing wasting time looking at competitors' sales results.
The benchmarking process
1. Defining benchmarking goals
It's important to know what you want out of the process before beginning it. Knowing your aim allows you to focus your attention on what matters, rather than becoming overwhelmed by the overload of information available.
Making sure you are comparing yourself to the right businesses is important as well. If you're a small business in Geelong, Victoria then looking at data around business expenses for similar companies in Sydney makes no sense. Finding out that your rent is far less than theirs could give you a mood boost, but it won't tell you anything useful about whether you're being charged a reasonable rate for your location.
However, if you are wanting to improve marketing techniques, don't limit yourself by looking only within your own industry. By comparing overall results, you gain the opportunity to think outside the box and challenge any pre-conceived notions you, and others in your industry, have around market practices.
2. Learning from your competitors
Using your competitors as a way to learn and improve is not a new concept. Anyone that's read 'The Art of War' by Sun Tzu will find it a familiar idea, and it's used in many different domains. Benchmarking just provides an efficient means for doing this. With analysis, you're able to drill into competitor results to glean valuable insights.
It's not just looking at other competitors' strengths, either. Identifying what's causing poor results in different companies shows you where you need to strengthen your own business to avoid following in their footsteps.
3. Instigate change
Don't let the information you've gathered sit and stagnate. Instead, open up a discussion around the results. Ask employees for their input, talk to your accounting firm for advice, and seek creative solutions based on the insights you've gained. Take action, and implement the changes discussed.
4. Rinse and repeat
Once enough time passes for results to begin showing, go through the benchmarking process again. Make one of the focuses comparing your performance to the last time you went through the process. Doing this should allow you to see what went well, and which areas need revisiting.
If your small business is interested in using benchmarking to reinvigorate its processes and improve its bottom line, the team at WMC Accounting is here to help.