More than ever, businesses are looking to gain a better understanding of how they compare to their peers and competitors. After nearly a year of catastrophic events and the subsequent policies that have changed how businesses operate, business owners are in a state of heightened alert for whatever might come around the corner.
Whether yours is a new business just now finding its sea legs, or a veteran business that’s looking to get back on track, you can gain a better understanding of where your business sits next to others with benchmarks. Benchmarks can enable you to navigate decision-making when peers’ performance metrics are skewed to a new normal.
What Is Benchmarking?
Benchmarking is a process by which a business measures its performance, products or services, or other business metrics against its peers, competitors, or industry standards. It’s a way to know exactly where your business stands next to others. The key word here is “measurable” since hard-to-define qualitative metrics might make tracking progress more vague.
Benchmarking during COVID-19 can prove extremely difficult, since the standards across most businesses and industries look significantly different than they did pre-pandemic. Still, if you’re starting a new business or simply getting your business back on its feet, benchmarking will guide your growth trajectory in meaningful ways
Related article: https://justworks.com/blog/how-know-startup-path-profitability
Examples of Business Benchmarking Metrics
Benchmarks might focus on measuring customer acquisition, financial performance, or operational efficiency, or another key business area. As long as there’s a qualitative metric at the end of your goal, and it’s shared by other businesses, peers, or competitors, then it’s a valid benchmark.
The key metric behind customer acquisition might be, well, new customers. Financial performance metrics could look like revenue or cash flow in and out, for example. Operational efficiency metrics might be sales quotas, product- or service-related production, or your expense-to-revenue ratio.
The point is that these are the metrics that should accurately define success for your business. And comparing these aspects of your business to peers, competitors, or industry standards can help you identify areas of improvement — and lead to more strategic decision-making for your company.
How to Perform a Benchmarking Analysis
Extracting data on peers, competitors, and industry isn’t Mission Impossible. Oftentimes this data is free and easily accessible online from reputable industry organizations or government sources.
One place to start is industry annual reports. These can highlight indicators of success, such as ROA or inventory-related metrics, and can give you a macroscopic view of what success should look like for your company. Additionally, trade journals or competitor publications can yield similar insights.
Although COVID-19 has rendered comparisons to previous years all but impossible, you can still refer to shorter lookback periods (think weekly or monthly) for your given industry, using stats and reports available online.
Benchmarks Analysis Resources
The financial health of your business can be measured by many KPIs and can stack up differently to other businesses or industry standards depending on what you’re focused on — all of this affects how you analyze your benchmarks.
If you’re working with a reduced staff due to COVID-19, or still trying to find your stride with a remote workforce, your performance benchmarks might look different than previous years.
IRS Corporation Source Book. This compiles corporate financial data such as statistics on income and income tax returns. If you’re a small business, you can extrapolate these data points and scale them to fit your income levels.
Census Bureau Small Business Pulse Survey. These survey results are updated weekly and provide insight on how businesses are faring during COVID-19. It includes information on small business operations and finances, requests and receipt of assistance, and measures of overall well-being and expectations for recovery.
Department of Labor’s Databases, Tables, & Calculators. The Department of Labor has collated stats on employment, output per hour, unit labor costs by industry, as well as compensation benchmarks by occupation and region.
Glassdoor. Glassdoor can give you a rough-around-the-edges estimation of what you should be compensating your employees based on their title. For a more comprehensive analysis of your compensation model, however, it’s best to work with an outside consultant who can provide guidance on the right range of compensation.
Beyond the common financial KPIs, benchmarking could prove useful in helping you improve how your people and processes work together. In cases where you’re looking at performance, benchmarks might be important, agreed upon business KPIs such as sales- or inventory-related quotas.
Customized Business Reporting by Justworks
In order to properly benchmark your business against peers and competitors, you must have the right tracking and reporting tools in place.
One of the most convenient methods of tracking business metrics, be they financial or performance-based, is to implement a tool that continuously tracks these key metrics and compiles them in an easy-to-read dashboard. For instance, with Justworks, you can track benefits enrollments and contribution amounts, timecard usage, payroll, PTO balances, and PTO requests — all in one place.
Keeping this pulse check on your business not only gives you a bird’s eye view of employee metrics, like PTO per employee, and financial metrics, like cash flow out; it also helps you determine if your employees are getting maximum value from the benefits you’re offering. The net results of tracking these metrics are the crucial insights that lead to more strategic, informed decisions about your business.
If you’re interested in getting the full scoop on Justworks business reporting tools, check out our article on our reporting features here.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.