As the owner of a small business or a leader at a privately held company, it’s not always easy to accurately judge organizational performance. Sure, revenue numbers look good, your employees are well paid and happy, and you have a nice pile of cash socked away in the bank for a rainy day.
But how does your organization compare to your competition?
Benchmarking can tell you.
In this article we’ll teach you what benchmarking is, why it’s important, and five best practices you can implement to benchmark your brand successfully.
What Is Benchmarking?
At its simplest, benchmarking is the practice of “sizing up” an organization and comparing it to others in the same field. The goal is to get an accurate read on the industry as a whole so that you can know for certain where your organization stands within it.
This article will mainly focus on what’s known as “competitive benchmarking” but there are other kinds as well. It may be useful for you to understand each.
Internal benchmarking is the simplest of the four.
As the name suggests, it refers to comparing one internal operation to another and accessing the effectiveness of each. The results can then be used to increase company productivity and efficiency.
For example, if a warehouse manager discovers that the night shift crew unloads boxes 20% faster than their daytime counterparts, he may conclude that it’s because the night shift has access to more forklifts.
During the day, other departments use the company’s forklifts as well, thereby hampering the day workers’ progress. The warehouse manager can then go to upper management with his findings and request they purchase more forklifts in order to boost productivity.
This is an illustration of internal benchmarking and how it can be beneficial.
Functional benchmarking, also known as industrial benchmarking, is more difficult to complete than internal.
It’s done by comparing a company’s overall performance with other companies in the same industry. What makes this form of benchmarking harder is the lack of data available.
If, for example, your company operates in the eCommerce industry, it wouldn’t be hard to figure out Amazon’s performance information. They are a publicly traded company so many of their details and business philosophies can be found online.
But comparing your organization to a small privately owned one in North Dakota is much trickier.
Still, functional benchmarking can give you an important look at where your business ranks within its industry as a whole.
Competitive benchmarking takes real detective work. And like we mentioned earlier. It’s the kind of benchmarking we’ll be focusing on in this article.
It refers to comparing a company against its direct competitors. Returning to our previous example, a competitive benchmarking exercise would attempt to glean information about the small privately owned eCommerce business in North Dakota, not Amazon.
While it’s important to understand what the biggest players in your industry are doing, you’ll likely see the biggest company growth when you focus on improving your business in relation to your direct competition.
Generic benchmarking refers to comparing a business to others regardless of industry.
This exercise is much more beneficial when comparing specific business practices or metrics rather than overall performance. For instance, use generic benchmarking to compare things like shipping speeds or NPS scores.
These are areas that your business can actually hold its own in — even against much larger companies. But trying to compare, say, total revenue numbers with Amazon is a fool’s errand and completely unhelpful.
Even if you run an eCommerce business, Amazon is in a league of their own.
The Importance of Benchmarking
So, why is competitive benchmarking important? We just said that it takes effort and a healthy amount of detective work to do correctly. Why should your company even bother? There are a few reasons why.
1. Know Your Own Numbers
To accurately benchmark your company against its competition, you first have to know your own numbers. You have to understand intimate organizational details about the business you own or manage.
How else will you be able to compare performance?
You probably already know the major details like revenue numbers and expenses.
But what about the smaller details that make a big difference?
Things like productivity information and customer satisfaction ratings. Benchmarking forces you to discover these stats.
2. Know What You’re Doing Right
Benchmarking also gives you great insight into what you’re doing right. If, for example, your website is currently getting 10,000 more hits per month than each of your competitors, you can rest assured that your traffic-driving efforts are succeeding.
When you know what you’re doing right, you can double down and do it more. You can play to your company’s strengths and try to distance your brand even farther from the competition.
3. Know Where You Can Improve
Lastly, benchmarking will illuminate the areas in your business that you need to improve. Your business may be getting 10,000 more hits per month.
But what if you discover that your biggest competitor is converting website visitors into paying customers at an astonishing 5% clip?
If your organization’s conversion rates are south of that number, you know what area of the business to work on. There will always be areas in your business that can be improved upon. Benchmarking allows you to clearly see which areas those are.
5 Benchmarking Best Practices
Benchmarking for small businesses can be a difficult task. Unlike major corporations who can easily compare themselves to other publicly traded companies, it may be difficult for your organization to get an accurate read on the competition. But it’s not impossible!
The five best practices listed below will help you complete this all-important task and gauge your business’s performance. You can then use the information you glean from this exercise to develop and improve your company in the ways that matter most.
1. Determine What You’re Benchmarking
The first step in any benchmarking effort is to determine what exactly you’re benchmarking.
Do you want to compare your company as a whole to others in the same industry?
Or are you more interested in evaluating specific processes?
Your answer to these questions will dictate your actions moving forward. Next, identify goals for the benchmarking process.
What do you hope to achieve by researching and comparing your company to its competition?
Better revenue numbers?
Higher productivity levels?
Ways to cut costs?
Proper benchmarking can shed light on how to accomplish each of these goals. But knowing exactly what you want to accomplish before starting will make the entire process more efficient.
2. Identify Your Metrics and Competition
The next benchmarking best practice is to identify important metrics and your company’s main competitors. Regarding metrics, choose meaningful ones that are easily measurable.
For example, if your main benchmarking goal is to boost revenue, you may decide to track the cost of goods sold, website conversion rates, and/or overall sales volume. As for your competition, you likely already have a good idea of who your brand is directly competing with.
Remember, “directly” is the keyword here. When running competitive benchmarking tests, you’re not trying to compare your organization’s performance against the Apple, Google, and Amazon’s of the world. Even if you have your finger on the pulse of your industry and know each of your direct competitors by heart, it doesn’t hurt to do a little research and make sure a new brand hasn’t sprung up unnoticed.
This research phase will also allow you to assess the competition.
Only benchmark your company against other successful businesses. Don’t bother with the here-today-gone-tomorrow, house of cards companies.
3. Collect Data
Now that you know what your benchmarking goals are, the metrics you’ll track, and your brand’s biggest direct competitors, the research phase can commence. You need to collect as much data as you possibly can — as long as it relates to the goals you’ve set.
Ask yourself questions like, “How is the competition differentiating themselves in our industry,” and, “What marketing and sales channels are they using,” and, “Are they using any kind of technology to improve productivity and overall performance?” This is where you need to put your detective hat on and dig deep for answers.
Fortunately, we have a few ideas to help you do this.
Data Collection Tips
- Google is Your Friend: The obvious option is to scour the internet looking for clues on your competition. Look for things like end of year reports posted to your competitors’ blogs, or case studies and news articles written about them. Customer reviews may be helpful as well. It will take time, but a lot of valuable information can be found if you simply looking for it.
- Use Proper Tools: Software solutions like Moz and SEMrush can give you SEO data on your competition. A tool like SimilarWeb or Brandwatch can give you details on your competitors’ customers, the effectiveness of their marketing funnels, and industry trends to be aware of. There are plenty more tools out there as well that will help you. Most of them must be paid for, but the details they’ll be able to quickly dig up will be worth it.
- Pay for Research Reports: There are companies who conduct research on entire industries and the businesses inside them. They then sell their findings to interested parties. It’s often expensive, but if you have the money, you can acquire detailed research incredibly quickly.
- Conduct Your Own Surveys: Finally, you can conduct your own research by going directly to your competition and asking them the burning questions on your mind. Depending on your industry, you may choose to do this openly or anonymously. Not every competitor will cooperate. Those that do may want compensation. But keep this tactic in mind if the other three don’t work out.
Once you’ve collected a sufficient amount of data, you can move on to the fourth best practice.
4. Analyze the Results
Great job! You now have a pile of competitor data available to you. It’s time to dive in and analyze it. That way you can use it to help develop new strategies and processes that will improve your business.
Organize all the information you’ve gleaned and compare it to your own company figures.
Where does your company stand? Which areas are you ahead in?
Which can be improved upon?
Armed with this knowledge, you can begin strategizing for the future.
If your organization changed nothing, how would it stack up against the competition in three years?
What if you made small, single-digit percentage improvements?
Based on the information you have, you can create a plan that will help your company improve and grow.
5. Implement All Necessary Changes
Now that you have a strategy in place and know exactly how to improve your business, the only thing left is to do it. Begin implementing your plan immediately.
Get your entire team on board. Make the necessary changes. As you start to adjust processes and try new tactics, be sure to monitor your progress.
Are the changes you’re implementing effective? Why or why not?
It may take time for some changes to produce a positive result.
So don’t give up too easily! The key to success with any small business is continuous improvement. Learn from your competitors, implement new best practices, and iterate when appropriate.
Know Where Your Business Stands
Benchmarking is a very important business practice. By comparing your organization to others in the same industry, you’ll gain insight into what you’re doing right and what you need to improve upon. You can then use this information to accurately assess the value of your business. To start the benchmarking process, follow the five best practices we outlined in this article:
- Determine What You’re Benchmarking: Is it your company as a whole or just a few specific business processes? Set goals for yourself to achieve by benchmarking.
- Identify Your metrics and Competition: What numbers will you track and who will you compare your business to? Know the answers before starting your research.
- Collect Data: Conduct deep and thorough research on your competition. You can use Google, paid for tools, research reports, or even send your own surveys.
- Analyze the Results: Compare your findings to your own business. Where does your organization stand? Begin crafting a strategy to improve.
- Implement All Necessary Changes: Make the changes you need to and monitor the results. Continually adjust as needed.
If you follow these five benchmarking best practices, you’ll be able to accurately compare your business to its competitors and craft a practical strategy to improve. Good luck!