If you want to be the best, you have to beat the best. That is true in life and in business. In any industry there is usually a clear leader of the pack. For a small business just starting out, adopting best practices of your top competitors can distinguish your company from the also-rans. Once you identify your key metrics, work to approach the numbers of the competition. This is called benchmarking and it’s vital to the long-term success of your business.
There are four types of benchmarking by which businesses can compare and contrast.
Internal benchmarking is the comparison within a company between different departments. How does the sales team compare to the event team in terms of close rate? How does one location’s performance compare to another’s? Internal benchmarking is the easiest because these numbers are readily available.
This is the most insightful form of benchmarking. Competitive benchmarking compares your business to your top competitors. This information can be difficult to obtain as companies may be unwilling to divulge industry secrets.
Functional benchmarking compares similar processes across industries. An example would be order fulfillment time for various retail specialties. While a clothing store and a sporting goods store would be considered different markets, their metrics can be compared.
This is a broad way of thinking and using the methods of one company to apply to your own, regardless if it’s part of the same industry. McDonald’s famously used an assembly line methodology popularized by the manufacturing industry to apply to food service with enormous success. Adopting successes of one industry and applying it to your own metrics is outside-the-box thinking that can be the key to your small business success.
Getting started with benchmarking:
1. Identify key metrics.
What are the most crucial parts of your business? Where do you need to make improvements? These can include but are not limited to:
· Cost per unit
· Customer acquisition costs
· Profit margin
· Product return rate
· Product damage rate
· Employee safety report
· Employee turnover
· Order fulfillment time
· Customer retention
2. Research your competitors.
Once you identify the areas you want to improve, you’ll need to determine your top competitors. This may be several companies for different areas. Who has the most market share? Who has the best customer rating? Who has the most efficient warehouse? Who has the best marketing strategy?
Once you identify the companies, work towards finding out their analytics. See what’s published in industry reports. Hire an accounting firm like JADDE Financial Solutions to examine your books and look for areas where benchmarking can benefit your business.
3. Capitalize on your image of difference.
Your end goal shouldn’t be to copy your top competitor. It should be to take what makes them successful and apply it where you can to your business in areas where you are having difficulty. If you are going to be successful you will have to differentiate yourself in your competitive marketplace. Not all metrics will apply for benchmarking. If you are known for the highest quality product, then your goal should not be to approach your competitor’s cost of goods. If you’re known for the best customer service, then your employee training and compensation package should be better and higher than your competition. Your business will suffer if you suddenly cut corners to meet a bottom line.
4. Set goals to implement what you’ve learned from benchmarking.
Make a year plan to focus on key metric improvements and reevaluate throughout the year. If you’re looking to get your customer acquisition cost down, what can you do to increase your visibility? How can you improve product education? Meet with your employees, but also survey customers and industry professionals. Benchmarking is a fluid process that should be regularly reevaluated. Your business will only reap the benefit.