Business owners and managers can learn a lot by comparing their business’ key metrics against others.
As a general rule, benchmarking your business against others raises more questions than you have information to answer. Every business is unique, no matter how simple or small it is. It can still however be a really valuable exercise.
Benchmarking is best seen as a process to generate issues and questions, rather than answers. A quick and dirty review of commonly available metrics will usually help spot some problems and opportunities, and won’t take long.
There are lots of sources out there. If you haven’t yet, you should check the ATO’s small business benchmarks for your industry. Apart from the business insights, if you are reporting outside its ranges you might attract an audit and you should review your numbers and processes. The ANZ Business Insights tool provides data collected through their merchant services, great for seeing seasonal, and even hourly sales cycles, average transaction values and other interesting metrics. Industry associations are good source, and a web search will find various options. Benchmarking.com.au are also worth looking at. The service has been around for over 25 years in various guises, originally part of the University of New England, Armidale. They publish reports on over 90 industries or can facilitate closed or public custom benchmarking studies.
We’d suggest ‘broad based’ benchmarking be built into your management review cycle, perhaps just annually, with a session to review the analysis and capture all the issues and questions raised so that these can be followed up and closed out. It might be helpful to have some benchmark data listed in regular management reports, but be careful of metric overload.
It will normally be more valuable to do targeted benchmarking, by either:
- focussing in on fewer key metrics aligned to your strategic or operational focus at the time (say cost cutting, staff retention, client retention, customer acquisition costs, reducing debtor days, stock levels … or whatever); or
- narrowing the participant pool, perhaps by facilitating a closed private benchmark study among competitors. While some might find your invitation a little radical, depending on the nature of your industry, collaborating with a select few could really help you get ahead of a much bigger pack.
I note the cloud accounting software providers, Xero, have made it clear they hope to use everyone’s accounting data for benchmarking (opt-in, presumably). While a little big-brotherish, we think this is totally cloud-modern-cool.