What is Benchmarking?
Benchmarking is the process in which a company compares its own performance metrics against others in the industry. Business owners use this tool to identify best practices that will help improve business performance. Benchmarking helps to determine how well you are doing when compared to others, and allows you to set targets for improvement. These measures provide guidance on what figures we would normally expect a business in a particular industry to report. Benchmarking is a structured approach that involves data collection, analysis, and reporting. Dimensions most commonly benchmarked are quality, time, and cost. The result of the data analysis is a point of reference against which you compare your company’s performance and target improvements.
Why Should I Use Benchmarks in My Business?
As a business owner, you can use benchmarks to help your business improve. If you don’t know what your industry’s standards are, you cannot compare yourself against them. Further, it is important to know where your competitors stand and how others in the industry are performing. If you don’t benchmark, how do you know if your performance is good or poor? It is important to benchmark to not only improve performance, but also to not fall behind your competitors.
What Can I Benchmark?
Benchmarking is a management tool that is being applied almost anywhere. You can use either quantitative or qualitative measures when benchmarking. Quantitative benchmarking compares metrics that can be calculated, such as ratios, and qualitative benchmarking compares processes that are subjectively critiqued and compared. Often, a qualitative benchmark can give an answer to the shortfalls of a quantitative benchmark.
Typically, there are two different styles of benchmarking:
– Internal benchmarking – compares results internally over multiple time periods
– Peer benchmarking – compares results between businesses in the same sector
Conducting internal benchmarking is relatively easy as the information is readily available. Peer benchmarking on the other hand requires the use of publicly available data, which can be more difficult to find. An excellent source for peer benchmarking is industry Canada’s SME benchmarking tool.
Small and medium-sized enterprise (SME) Benchmarking offers industry-specific income statement and balance sheet data for small to medium sized business. The tool allows you to estimate the operating costs for a new business, view financial performance averages for the industry you compete in, and enter in your company’s own financial data to see how your business measures up to companies your size.