Part of the fear in starting a new business is that you’re never quite sure of where to begin. Although you may compare yourself to a few key businesses in your field, for the most part you don’t have insight into those operations and are pretty much flying blind.
This is where benchmarking comes in. For today’s SmartCompany Olympic challenge, we’re going to take a look at how you can set the high jump bar for your company – and use benchmarks as a tool for success.
It’s as simple as it sounds – benchmarks for how your business should be performing in terms of revenue, profit, staff costs, and other fundamental financial statistics.
It sounds obvious to use these, but many businesses don’t even try benchmarks.
“Benchmarking can relate to just about any sort of measure you can think of,” says MGI Melbourne principal Sue Prestney.
“They’ll include things like growth profit percentage, perhaps net profit percentage, wages and so on.”
“It’s very basic, to determine whether you’re operating better or worse than the rest of the industry.”
Prestney says she once set some industry benchmarks for a client, who then discovered he was spending more money on staff than was necessary – and quickly changed his business model.
The first area you’ll want to explore is the Australian Taxation Office’s benchmarks. These are the first port of call for many businesses, and not just because the tax man will be checking to see if your business differs wildly from the averages.
Each benchmark goes down into individual business categories as well. There are benchmarks for pharmacies, hairdressers, and even fence construction services.
But as Prestney points out, these aren’t always the best ones to use.
“The hardest thing about benchmarking is getting statistics that are relevant to you, and some businesses just don’t fit into these categories.”
“That’s often the problem with benchmarking, and sometimes it does take some time to get accurate statistics.”
Private benchmarking services
This is why there are plenty of other private benchmarking services. ANZ runs one of its own, and there are specialised small businesses dedicated to certain businesses types or categories.
Even some universities carry their own benchmarking services, and many accounting services will have their own benchmarks provided by private clients.
It doesn’t matter where you get them, as long as they’re the most accurate for your industry. And as Prestney says, even a little bit of comparison is better than nothing.
“It’s quite difficult to get benchmarks for your business that are accurate to what you’re doing, but it can be a very useful tool.”
“The hardest thing you’re going to do is get stats that are relevant to you. So try and figure out which ones are most appropriate, and then go from there.”