Ever heard of benchmarking?
Benchmarking is where you compare the results of your business, usually its critical success indicators, with other businesses of your size in your industry.
If you’ve heard of it, have you ever done it (i.e. or has your accountant done it with or for you)?
If not, you’re doing your business and yourself a disservice.
Whilst all benchmarks need to be taken with a grain of salt, comparing your business with other similar businesses in your industry can provide you with invaluable information such as:
– Whether your pricing is too low;
– Whether your business processes are efficient;
– Whether your business is over or under staffed;
– Whether your business is as profitable as it should be; and
– How your debtor and stock days compare to the industry.
Benchmarking can be a big eye opener for many small business owners, many of whom operate in a bubble where working harder usually wins the day over working smarter.
With so much on the line, small business owners are often understandably reluctant to do things which might lose them work and, by extension everything they own (e.g. price increases, system changes, debtor collection etc).
Benchmarking your business often provides some comfort in the fact that others have made these changes.
So, how does benchmarking work.
Let’s say you benchmark your business against similar businesses in your industry, and find that your gross profit is lower than industry averages, you can bet that one of the following is happening with your business:
– Your pricing is too low;
– You’re paying too much for your stock or productive staff; or
– Your manufacturing process is inefficient.
The next step is to test each of these areas of your business to see which is underperforming and implement measures to improve the underperforming part of your business.
This can be looked at for all areas of your business.
It takes time and effort but driving your business forward like this will give you infinitely better results than working harder.