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Benchmarking Explained

by Tash Hughes of Word Constructions (www.wordconstructions.com

Benchmarking is one of those businesses terms most people have heard of, but many of us donít know what it really means.

It actually is a useful tool for anyone serious about developing a strong business that will last. And you donít have to be a marketing genius or business expert to use it, either.

What is benchmarking?

In its simplest form, benchmarking is comparing your business to others to understand your current position and learn from it.

Benchmarking is about learning and developing rather than winning or losing so all comparisons are measurements. That is, if you compare your profits to another business in your industry and find yours are low, it could be that you realise you can increase your prices.

The process can be very time consuming, especially at the beginning. Even if you contract an external benchmarking firm to help you, you will still need to spend a lot of time developing a plan and investigating your business.

You can choose to benchmark your entire business or just some key aspects of it. The main thing is to make benchmarking a continuous process rather than a once off effort.

Why should I benchmark?

By comparing your business to other businesses, you can learn a lot about how to develop and grow your business.

Benchmarking can show you

  • Where your weaknesses are
  • Which areas you can improve
  • New or different ways to do things
  • Strategies for improvement
  • What is possible
  • Where your strengths are and how to maintain them
  • Where you can increase efficiency

Using this information, you can plan ahead and improve your business and potentially get an edge over any competitors. It can also give you direction and motivation.

What do I benchmark?

The first step is to identify different aspects of your business and choose which are the most important to your business success.

Some aspects of business you may benchmark include:

  • Customer service
  • Profitability
  • Manufacturing processes
  • Accounting procedures
  • R & D
  • Overheads
  • Turnover
  • Staff turnover
  • Number of customers
  • Marketing
  • Sales methods
  • Product range
  • Policies
  • Complaint procedures

You can benchmark one or many aspects at any given time.

Who do I benchmark against?

Depending on what aspect of your business you are comparing, you can choose a wide range of businesses to benchmark against.

You donít have to compare to other businesses in your industry, although this is useful for things like customer types and profit margins.

Compare yourself to other small businesses, related industries, a model business or industry averages. You can even compare yourself to your objectives and compare different departments in your business.

How do I benchmark my business?

One option is to use an external company who is experienced in benchmarking as they will gather information and provide you with a detailed analysis of the results. However, this may be too costly for small businesses.

It is possible to benchmark your business by yourself, and there are a number of benchmarking questionnaires available over the internet to assist you.

Another option is to form a group of 4 to 8 businesses and do a combined benchmarking exercise. Choose businesses of similar size and operations to make the result meaningful, and make sure an appropriate agreement is in place first to protect your data.

Once you have established an aspect or two of your business to benchmark, you will need to identify criteria to compare. For instance, comparing administrative processes could compare how often filing is done, how emails are filtered and who answers general enquiries.

Put the relevant criteria into a questionnaire form or checklist as this is an easy format to work with. Then answer the questions for your own business.

Gathering information to compare with will depend on the type of information you are after. You may find it on their websites, in their brochures, through industry bodies, through statistics firms, asking directly, trade journals, their annual report, or various other ways.

Be as thorough as possible as accurate and complete data make the final comparisons more effective.

Making comparisons

Some aspects are easier to compare than others Ė it is easy to compare the number of staff but not so easy to measure customer satisfaction.

Comparisons can be converted into percentages, tables, charts and graphs to make them more meaningful for you.

Looking at the compared data, you may determine that some aspects of your business need no extra work despite its importance in your business.

Comparisons arenít always black and white. Make allowances for explanations, although donít explain away everything to avoid acting on the results!

Examples

Sally and Jane both run mobile hairdressing services. Sally carried out some benchmarking comparisons and saw that Jane had more than double the number of customers than she did. However, as Sally was in a country town and Jane in the city, the difference wasnít an indication that Jane was doing a lot better than Sally. Trying get the same number of clients as Jane wouldnít be a worthwhile use of Sallyís time and money.

John and Bob own businesses of similar size and structure, but Bobís overheads are much smaller. John can see the higher overheads are mostly due to his inner city location to be close to his clients, but also noted that Bob cut costs by changing power companies. John is now researching power companies in his area.

Suzie and Fred are both sole traders based from home, although in very different industries. Fred noticed that Suzie was outsourcing her bookkeeping whereas he did all of his himself. Through benchmarking, Fred could see that Suzie made more money by saving the bookkeeping time so he hired a bookkeeper as well.

George and Tim are both web designers, although Tim has only been in business six months. Tim didnít compare how many clients he and George have as he knew George already had a successful client base. Instead, he compared how George invoiced his clients and did follow up services. He noticed a few things he could use and also realised George tended to ignore complaints. By setting up a good complaints system, Tim hoped to build a better reputation and have an edge over George.

A group of five sole traders worked together to benchmark themselves. The five had a lot of business similarities but werenít in direct competition with each other. By sharing information, they all learned new practices, increased their efficiency in general business practices and discovered new marketing techniques.

 

Tash Hughes is the owner of Word Constructions and is available to solve all your business writing problems! From letters to policies, newsletters to web content, Word Constructions writes all business documents to your style and satisfaction.

 

This article is available for free use on your web site or in your newsletter.

It must be acknowledged as written by Tash Hughes of www.wordconstructions.com.au and copyright remains the property of Tash Hughes.

Please notify us of your use of this article or to request information on commissioned articles.

 

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