Every business is unique. You have your own goals, and you follow your own path to success. But how do you know if you’re on the right track to achieving those goals? Benchmarking gives you a helpful starting point for measuring your progress, performance, and operations.
Measuring your data against internal and external metrics can help you stay ahead of the competition and build the business you envision.
Here’s what every business owner should know about benchmarking and why it’s important.
What are Benchmarks and Why are They Important?
Benchmarks are the data points you use to compare and measure your business’s performance, such as:
- Sales growth
- Customer satisfaction
- Profit margins
- Return on investment
- Progress on new initiatives
These benchmarks can be measured against internal and external standards.
- Internal benchmarking compares your historical data and helps you improve your products and procedures.
- Competitive benchmarking compares your performance against your competitors.
- With strategic benchmarking, you aim to emulate specific performance standards of top-performing organizations. These organizations don’t necessarily have to be in your industry. One famous example of strategic benchmarking is Southwest Airlines modeling its cleaning, maintenance and boarding processes after a NASCAR pit crew.
Businesses can have many different types of benchmarks, depending on their goals and industry.
But why are benchmarks so important? For starters, they help you measure your performance against your competitors. Benchmarking can also help you:
- Identify areas of improvement
- Improve customer satisfaction
- Alert stakeholders of potential issues
Every business has goals, and it’s difficult to know if you’re on track to achieving those goals if you’re not measuring your progress. Benchmarking helps you do that.
But the question is: which benchmarks should you target?
Identifying the Benchmarks You Want to Target
If you want to leverage the full potential of benchmarking, you need to know which metrics to target.
Consider two main areas:
- Key metrics to hit to reach your goals
- Key metrics for your industry
When identifying benchmarks, take care not to go overboard. You could easily come up with hundreds of benchmarks, but it’s better to narrow them down to 6-12 that matter the most. If you have an excessive number of metrics, the data starts to lose its meaning.
Developing Your Metrics
Now that you’ve identified your metrics, it’s time to focus on your standards. You can pull your standards from two places:
Your industry. Trade associations are a great source because they gather information on things like sales growth, profit margins, employee costs and more.
Internal historical data. For example, maybe you grew 5% last year and 6% this year.
When pulling industry standards, analyze the top 25% of businesses in your industry to see what they’re doing right and identify where you could improve.
When setting your metrics, always keep your company’s objective in mind. Let’s say that you want to grow 10% but the industry average is 2%. In this case, you’ll have quite a bit of work ahead of you if you want to achieve your goal. On the other hand, if your goal is 10% growth and that’s the industry standard, then it may not be a big challenge to achieve this objective.
Once you’ve developed your metrics, the next step is to implement a process for tracking them.
Tracking Your Metrics
Goals and benchmarks are only effective when you can track them. You need to have systems in place to track your progress, which should include:
- Leading indicators: A leading indicator is predictive in nature and happens prior to a lagging indicator. For example, traffic to your website may be a leading indicator of new prospects booking discovery calls. And the number of discovery calls can be a leading indicator of future sales.
- Lagging indicators: A lagging indicator is historical in nature. Continuing from the example above, a lagging indicator would be the number of sales you receive directly from your leading indicator. You can also opt for a different lagging indicator, such as the number of people who call your business from your website.
If you’re not tracking metrics, it’s time to sit down with key stakeholders and learn how you can begin tracking conversions and other metrics.
For example, perhaps you will want to track:
- Productivity
- Customer retention
- Client engagement
- Customer satisfaction
- Social media reach
- New business
- Conversion rates
- Employee retention
It’s crucial that benchmarking have clear, concise metrics to monitor because they will allow you to have an easier time communicating your successes or failures to your team.
Communicating Goals and Progress
Benchmarking goals and progress must be shared with your internal managers and teams. You need to alert all parties to your benchmarking goals and why they’re important. Metrics that are well-communicated and well-understood are easier to reach.
Your team will dictate your success in reaching your goals.
Only 14% of low-level employees know a business’s goals and priorities. If your employees and managers don’t know your goals, how can you expect to reach them?
Communication is key in goal setting and will allow you to:
- Explain where progress is right now
- What changes are necessary to reach your goals
- How you can keep moving towards critical metrics and goals
Managers and owners need to use benchmarking as a way to monitor progress, but they also need to bring “everyone on board.” If everyone knows the benchmarks and how they relate to the company’s success, it will make it easier to reach them.
Measuring and Improving Your Benchmarking
Your business has done a lot up to this point, and while you’re tracking your metrics, it’s time to use this data to measure and improve, too. Businesses need an easy way to measure success, and dashboards or reports are the go-to option.
You’ll want an easy way to view:
- KPIs (Key Performance Indicators)
- Progress and/or declines
- Percentage to goals
Benchmark monitoring allows you to quickly see what’s going right or wrong in your business. If you monitor progress and have milestones that you need to hit that aren’t improving, you can make adjustments.
Over time, as you analyze and adapt based on the benchmarking data, you’ll hopefully start hitting your goals and milestones faster and more often
Final Thoughts
Benchmarking falls into many categories, such as competitive, performance, strategic, technical and internal. If you continue to improve operations using these benchmarks, it’s possible to reach goals and milestones faster and more frequently. And when you hit those targets and achieve success, be sure to celebrate before setting new goals and targets!
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