In order to maximise the performance of your business, it is important to understand your position in the market. Benchmarking allows you to compare your business against your competitors across a number of important categories, some of which include:
Profitability. The primary goal of your business is likely to be generating an income for you and any other owners, so it is important to know your profit margins and overall profitability. The value of this information is more far-reaching than just knowing how much money you are making. It will allow you to work on sustainable pricing strategies as well. Imagine your competitors are selling their products or services at the same price as you, but you have a more streamlined production process and less overheads. With this knowledge you can consider things like long-term price reductions that you could sustain but that your competitors could not. On the flip side, if your profit margin is below average, you would need to look at adding value rather than discounting your prices in an unsustainable way.
Production costs. Tied closely to your profitability, benchmarking your costs against your competitors may highlight areas that need attention. Do you have outdated equipment that is slowing production and increasing labour costs? If so, upgrading that you might otherwise consider too expensive suddenly becomes a more important priority. By minimising costs without negatively impacting your product below the level of your competitors, you are in position to make your business more profitable without needing to increase prices.
Customer retention. How much of your business is repeat custom? Is this level better or worse than the average for your industry? Knowing that 50% of your business comes from repeat customers doesn’t tell you much unless you know that businesses like yours, in your area, average 25% repeat custom (your customers love you!), or that the average is 75% (get to work on your customer service!).
Staff retention. As with customer retention, gaining an understanding of whether your staff retention levels are above or below average is an important aspect of improving your business. If you are below average, why? Is it across your entire business or is there a particular department that may have a problem in management? Understanding is the key to addressing the situation before it gets out of hand.
These are just a few of the measurables you can use to see exactly where your business stands in your market. The important point is to use the information you gather to improve that position.
By Jennifer Lowe