Every business has goals. Maybe you want to grow your sales or expand into new markets this year. Having objectives pushes you to improve and innovate.
But how do you know if you’re on track to reaching those goals?
Benchmarking can help you measure your progress, performance, and operations. When done properly, it can be a game-changer for business owners.
But what are benchmarks? Why do they matter, and how can you use them to grow your business?
What are Benchmarks? Why Do They Matter?
Benchmarks are data points used to compare and measure a business’s growth, such as:f
- Sales growth
- Customer attrition
- Customer satisfaction
- Progress on new initiatives
- Return on investment
- Free cash flow
- Profit margins
These data points are measured against internal and external standards.
With internal benchmarking, you compare your historical data to improve your products and procedures. Competitive benchmarking is all about measuring your performance against your competitors.
Businesses can also use strategic benchmarking to emulate the specific performance standards of top-performing organizations. You don’t necessarily need to emulate organizations in your own industry. For example, Southwest Airlines used strategic benchmarking to model its cleaning, maintenance and boarding processes after a NASCAR pit crew.
Your business can have a variety of different benchmarks, depending on your goals and industry. But why should you have them in the first place? Why do they matter?
Not only do benchmarks help you measure your performance against your competitors, but they also help you answer a few important questions, like:
- What do we need to accomplish to succeed?
- How can we build accountability to hit our targets?
- What areas of the business can we improve?
- How can we enhance customer satisfaction?
Benchmarking can also inform stakeholders of potential issues.
You have goals for your business, but you won’t know if you’re on the right track if you’re not measuring your progress. After all, you can’t manage what you don’t measure.
The big question is: which benchmarks should you be targeting?
Identifying Key Benchmarks Benchmarking can help you make smarter business decisions, but you need to know which metrics to target.
Where do you start?
- Start by asking yourself, “Which key metrics are needed to hit our goals?”
- Don’t stop there. Based on your goals, what else do you need to be benchmarking?
Be careful not to overdo it when identifying your benchmarks. Narrow your list down to the 6-12 that matter the most. When you have too many metrics, the data starts losing its meaning. But when you have fewer than six, you won’t have enough breadth.
How to Develop Your Metrics
Once you have your benchmarks, you can start focusing on your standards.
Standards can come from two main places:
- Your internal historical data.
- Your industry. Trade associations, for example, often offer information on profit margins, sales growth, employee costs and other metrics.
As you pull industry standards, take a look at the top 25% of businesses in your industry to see what they’re doing right and identify areas where your business could improve on what they’re doing.
Keep your company’s goals in mind when setting your metrics. Let’s say the average industry growth is 20% and your goal is 5%. Hitting your target wouldn’t be a huge challenge for you in this case.
After you’ve developed your metrics, you can start tracking them.
How to Track Your Metrics
Now, it’s time to implement a system to track your progress, which should include:
- Leading indicators: These are predictive and happen before the lagging indicators. For example, let’s say that you’re in the construction business. Visitors to your site may be a leading indicator of new leads booking discovery calls. Discovery calls can be a leading indicator of future proposals or bids.
- Lagging indicators: These are historical in nature. A lagging indicator could be the number of proposals or bids you receive directly from your leading indicator.
If you’re not already tracking metrics, then sit down with key stakeholders to figure out how you can start tracking conversions and other important data points.
For example, you may want to keep tabs on:
- Productivity
- Employee retention
- Social media reach
- Conversion rates
- Customer retention
- Customer satisfaction
- Client engagement
- New business
Successful benchmarking requires clear and concise metrics to monitor because they make it easier to communicate your successes or failures to your team.
Communicating Goals
Benchmarking goals should be shared with leaders and team members, and it’s important to communicate why they’re important. Clear communication will make it easier to reach your targets.
Remember that your team will dictate whether or not you reach your goals, so buy-in commitment will be key.
Consider what changes are necessary to reach those goals and communicate these changes along with your goals.
Change is inevitable if you want to grow, but people naturally resist change. Communicate to your team that in order to hit your targets, you need to do things differently.
Only a small percentage of low-level employees (14%) know a company’s goals and priorities. If your team doesn’t know your objectives, how can they be expected to reach them?
Communicating Progress
Communicating your goals is just one piece of the puzzle. You need to hold your team accountable and keep them in the loop.
Explain what your progress is at the moment. Are you exceeding goals? Or are you falling behind? Use a simple color-coded progress tracker to make this process as simple as possible.
- Green means you’re on target
- Yellow means you’re a little behind
- Red means there’s an issue
When communicating progress, make sure that you’re asking, “How are we going to move forward? How can we keep moving towards our critical metrics and goals?”
Measuring and Improving Over Time
Now that you have a system in place, you can start measuring your progress and making changes as needed.
Reports and dashboards are the simplest ways to track and view your:
- Key performance indicators (KPIs)
- Progress and/or declines
- Percentage to hit your goals
Monitoring your benchmarks will make it easy to see at a glance what’s going right or wrong in your business. If you find that you’re not reaching milestones or improving, you can make adjustments as needed.
The Takeaway
Benchmarking is something every business should be doing, and it can fall into many categories: strategic, competitive, technical, internal, etc. Use this process to improve your operations and reach your goals faster and with greater precision.
And when you do hit those targets, celebrate those victories before setting new goals.
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