Benchmarking for Small Business

What Is Benchmarking in Business?

Benchmarking is the practice of measuring your business’s performance in a specific area against another variable to compare your business’s performance. Which method of benchmarking is right for your business depends on the questions you hope to answer.

There are three main types of benchmarking that can be useful to your business: If you want to measure the growth of one of your product lines or departments over the course of the last year, internal benchmarking can give you those answers. If you want to know how much you are over- or under-performing compared to your biggest competitor, then competitive benchmarking is for you. Or if you want to know how your company measures up to companies in your industry, functional benchmarking will help.

Many companies use a combination of these to get a complete view of their businesses’ performance against multiple objectives.

• Internal Benchmarking – Benchmarking against yourself can be useful for measuring performance changes in nearly any aspect of your business. Say you want to measure the success of a new sales initiative, for example: You can benchmark post-implementation sales against what you sold beforehand to see if this new initiative really made a difference. You can do this with any metric, whether you want to increase the length of time people spend on your website or reduce the number of customer complaints. You can even benchmark one similar department against another. Self-benchmarking year-over-year can help you measure the growth and stability of your business.

• Competitive Benchmarking – You can benchmark your company against a competitor to see how you are performing by comparison. In this case, you may only be able to benchmark against metrics that are publicly available, such as sales, social reach, and SEO. Good social listening can provide clues about what information other companies may be reporting.

• Functional Benchmarking – This is when you benchmark your company against one considered to be “best in class” or at the top of your industry, to spotlight areas for improvement. You can also benchmark your company against an industry average. Some industries are inherently riskier or have slower sales cycles than others, so benchmarking against a company or companies in your specific industry can give you a more accurate picture of how your business is really performing.

How to Get Started With Benchmarking for Your Small Business

Effective measurement and analysis of your business can be as simple or as complicated as you make it. It’s recommended that you start small ­– without hiring or purchasing a dedicated resource – simply by monitoring your business’s performance against a particular metric. From there, you can begin to set specific goals for your business and benchmark your progress on a regular basis. Actively tracking your progress greatly increases your chances of meeting your business objectives.

Follow these steps to begin benchmarking for your small business:

• Select a product, service, or process to evaluate that can help you reach your goals for your business. For example, such a goal might be to increase sales of a particular product line or to reduce manufacturing costs. In this instance, internal benchmarking against your own company over time can help you measure your success in this area.
• Identify meaningful KPIs and a time frame in which you will measure them. Choosing the right KPI can be challenging, but it is the most important step toward a successful benchmarking effort. Even more challenging is choosing a KPI that is publicly available from a competitor or another company in your industry. Benchmarking against another company can require some pretty persistent monitoring, but it can be useful when comparing such things as your company’s social media engagement or contracts won. Many social media platforms offer these kinds of tools for free.
• Choose external companies or internal processes to benchmark against. Who or what you choose to measure against will be strongly linked to the goals you’ve set for your business. If you ultimately want to increase your market share, then measuring against a direct competitor can help you accomplish that. If your goal is to improve customer experience in a particular department or service area, then internal benchmarking will be most useful to you.
• Collect data on KPIs for the selected time frame. This can be challenging for a business owner with many responsibilities. However, monitoring consistently for a specified period of time can have long-lasting benefits for on your business. Be sure to select a time frame that fits a reasonable trade off between spending company resources monitoring and collecting benchmarking data and gathering enough data to generate useful business insights.
• Analyze the data and identify opportunities for improvement. Once you have monitored your selected KPI for a significant period of time, it’s time to determine the impact of your findings on to your business of your findings. Perhaps the data shows that compared to this time last year, your website traffic has slowed. What changed? Maybe your competition has vastly improved their ability to win contracts since last year while yours stayed the same. The goal of benchmarking is to come away with valuable insights and actions that you can take to improve your business’s performance.
• Make sure that any goals you set for improvement are “SMART” – specific, measurable, attainable, realistic, and timely. In order to confirm significant progress, you must compare pre- and post-implementation results. Monitor your progress, but have realistic expectations. Select milestones and timelines to ensure you’re on track, and stay alert to the need to make adjustments along the way.

Benchmarking is a great way for small businesses to measure their business performance and make data-driven decisions in a manageable and cost-effective way. This can give you a competitive advantage not only among your peers but also among larger competitors who may already be basing their business decisions on actionable insights derived from benchmarking and other analytics.