10 Benchmarking Steps to Improve Your Business
Benchmarking plays an important role in business. It provides an objective analysis of your performance using data of the best performing company in your industry as the standard. So, how do you measure up against the competition? Gauge your successes, identify your shortcomings, improve business operations and gain increased returns with these 10 benchmarking steps.
Step #1: Identify and leverage your key business drivers
Business drivers are factors that support an organization’s strategy and can determine its success or failure. If you are engaged in the manufacturing of goods, your key business driver may be the efficiency or speed of production. If you are a service-based company it may be customer care. Whatever you use, the more you benchmark these factors, the better you’ll be able to manage and develop your business.
Step #2: Look for benchmark partners
Look for benchmark partners that are of a similar size and objectives as your company and identify best practices among them. It also pays to compare with companies outside your sector if they excel in something you want to analyze.
Step #3: Analyze your benchmarking partners’ strategic objectives
One of the aims of benchmarking is to learn strategic lessons from your partners. Think of the different ways your benchmarking partners’ strategic objectives, such as online sales channels and quality standards, can contribute to your business.
Step #4: Compare your processes’ efficiency
How effective are your quality controls, production techniques and stock management? How is the competition doing? Other considerations include how well are you are leveraging technology to your advantage, and whether you are updated on the latest methods of doing things.
Step #5: Evaluate how you allocate resources
Compare yourself with your benchmarking partners in terms of number of employees, how much they are investing in equipment or IT, as well as how much resource they allocate for marketing.
Step #6: Compare your overall spending versus industry norms
Identify areas where your costs are higher than your benchmark partners. Learning how the competition manages costs can greatly help you cut down on spending.
Step #7: Compute your revenue per employee ratio
The higher the revenue per employee ratio, the more productive and efficient your business is. If your sales are low, it doesn’t necessarily mean the problem is with your sales staff. The reason could be poor product quality or you are simply selling to the wrong crowd.
Step #8: Compare your gross and net profit margins
Your gross profit margin is the money you received from the sale of your products or services. Your net profit margin, on the other hand, is your profit from sales minus costs of the goods or services. Comparing the two profit margins will give you an idea whether you’re earning effectively from your sales efforts. How is the competition faring? Consider streamlining your operations to help increase your net profit margins.
Step #9: Find out how your customer service measures up
Comparing the sales generated by new versus returning customers will give you a pretty good idea of your service levels. Other factors to consider include the number of complaints you receive as well as your response time to orders and customer requests.
Step #10: Repeat the benchmarking process
Benchmarking shouldn’t be a one-time event only. Repeating the process on a periodic basis ensures maximum effectiveness. However, avoid the other extreme of doing it too often or you risk overworking your staff. Benchmarking periodically allows you to fine-tune and recalibrate the new methods you adopted as a result of the initial benchmarking.
Benchmarking is not a luxury reserved only for billion-dollar companies. By employing these 10 basic methods, you too can conduct your own benchmarking initiative and gain a strategic advantage for your small business.