Benchmarking your finances
Learn about the basics of benchmarking, which is measuring the performance of your business against other similar businesses. Find out how you can apply benchmarking to your business practices to stay competitive.
Understanding benchmarking
Benchmarking is the process of comparing your business against your competitors, or other similar-sized businesses in your industry or local area. There are 2 types of benchmarking:
- factual, where actual numbers are compared
- subjective, where a person's opinion is recorded.
Benchmarking can help you:
- understand what your customers need
- identify what costs you could reduce
- improve the efficiency of your business
- set realistic expectations and goals for the future
- examine how you are performing compared to the rest of the market
- assess the productivity of your employees
- identify opportunities for improvement, new ideas and innovative practices
- understand your competitors
- forecast the impact of any changes in your market.
You can benchmark different areas of your business such as processes, products, sales and finances.
How to benchmark your business
The most common way to benchmark your business is to:
- use financial ratios and calculators to get information about areas of your business you want to benchmark
- obtain benchmarking data which allows you to compare different areas of your business against industry or sector averages. You can find or purchase this data from:
- commercial benchmarking services
- your business or industry association
- online sources, such as the Australian Bureau of Statistics or the Australian Taxation Office
- compare and analyse your business's products, services and practices against others in your industry sector.
Performance areas to benchmark
When deciding which areas of your business would benefit most from benchmarking, you could:
- consider which areas of your business you would like to improve or where you could be underperforming
- identify the market leaders to help understand how your business measures up
- ask your staff for ideas about how improve your business
- review customer feedback, including social media content, for ideas on improvement opportunities.
The performance areas to benchmark in your business will vary between business types and sectors. Areas where benchmarking can be helpful include:
- operating costs
- gross and net profits
- yield per customer
- sales trends (e.g. volume, length of time to close sales)
- profitability
- marketing expenses as a percentage of gross revenue
- cost or revenue per employee
- the ratio of revenue to fixed assets.
Reviewing and comparing financial data can help you benchmark:
- billing and payments
- accounts receivable days
- accounts payable days
- percentage of outstanding bad debts per period
- quoting and pricing
- percentage of quotes accepted per period
- percentage of quotes rejected per period
- number of quotes using formal pricing schedule
- staff recruitment and selection
- staff turnover
- recruitment costs
- stock control
- stock turnover days
- percentage damaged or lost stock
- maintenance
- cost per period
- percentage downtime per period.
You could also use benchmarking data to compare customer feedback, including:
- number of complaints per period (find out how to manage customer complaints)
- number of return visits per customer.
Who to benchmark your business with
Once you have decided what aspects of your business you want to review, decide who you'd like to compare your business against.
Look at businesses seen as leaders in your sector or those that perform consistently well in the areas that you'd like to improve in. These businesses don't have to be your competitors and they could operate in different locations, sectors or industries.
You could benchmark your business against:
- industry leaders
- similar-sized businesses in your industry
- similar-sized businesses in a related industry
- competitors
- industry standards in financial and other performance areas.
Identify business leaders through observations, word-of-mouth, reading published surveys, industry and business publications, and searching the internet.
Find benchmarking data
There are both free and paid options for finding benchmarking data. Depending on your industry type, a range of benchmarking data is available by searching online.
Commercial benchmarking businesses provide data for a fee. Always do your research to make sure:
- the data you receive is accurate and up to date
- the data is relevant to your business
- any data you provide is confidential and not linked to your business
- you are receiving value for money.
You can seek advice from your business networks to find a benchmarking company that suits your needs.
Contact your relevant business or industry association for any information they have about performance standards or benchmarks for your industry. Many associations have detailed information you can use.
Search online to find industry associations relevant to your business.
If you have the time and expertise, you could research and compile your own benchmarking data.
- Find business and socio-economic data across sectors and locations from the Australian Bureau of Statistics.
- Use small business benchmarks information from the Australian Tax Office (ATO) to help you compare your business's performance against similar businesses in the same industry.
You could also combine data from a commercial benchmarking company or industry association with your own research.
Analyse your benchmarking data
Once you have a useful amount of data, start comparing this against your own business figures and forecasts.
Look at where your figures differ the most from the businesses you are comparing against. Consider what action you could take to bring your business closer to industry averages or improve above your competitors.
You may discover:
- you're overspending on operating costs—consider ways to reduce waste or negotiate lower rates with your suppliers
- your prices for products and services are too high or low—review how you could adjust prices in a way that doesn't impact on your customer loyalty or overall profit
- you're not managing your staff costs—examine ways to improve productivity, or increase staff training opportunities.
Related content
Learn more about benchmarking your business for greater performance.
Also consider...
- Learn more about research resources for business and industry.
- Learn more about financial ratios to benchmark.