What is benchmarking, and how is it useful to you as a business owner?
The technical definition of benchmarking is comparing business processes, operations, and performance metrics to those that are considered the industry best or as the American Marketing Association defines it, “a point of reference for measurement, often against other companies.” By using benchmarking data a business can develop strategies that increase profits, encourage improvement, and customer satisfaction. Business owners looks at benchmarks such as sales per store, an industry report, gross profit margin, and inventory turnover.
However, there is a reason I used the word technical. Benchmarking does not need to simply include a complex deep-dive data-heavy comparison within the same industry. Businesses can benchmark their business by looking at companies that sell products and services much different than their own. For example, what does United Airlines do that your café does not?
Not only that, but benchmarking is an effective way to evaluate your competitor’s strengths and weaknesses. Knowing this will help you take advantage of their weakness by creating an opposing strength and recognize your business’ own weaknesses.
You can identify your own strengths and weaknesses through a SWOT analysis. This is the internal evaluation of strengths, weaknesses, opportunities, and threats. Perhaps your product is extremely useful and well made. This would be an internal strength. However, your pricing might be high compared to others in the market. What opportunities can you create considering your strengths and weaknesses? Perhaps your competitor’s lower prices damages sales and serves as a threat to your business. Use benchmarking to strengthen weaknesses, seize opportunities effectively, and decrease threats.
So how do you benchmark?
The first step is figuring what in your company you could make more efficient, fix, or implement. Collect data on your own performance over various avenues such as marketing, customer service, revenues, product effectiveness, and customer satisfaction. Dig deep and evaluate your business from an owner, employee, and customer perspective. Create a SWOT analysis as a reference to your findings.
The second step is research. Evaluate different alternatives and diverse sets of solutions or opportunities. Look for businesses within the same industry but also those outside of your industry.
What does Starbucks do that your mechanic shop does not? Perhaps providing wifi and a more comfortable waiting area would boost sales.
What does Dillon’s do that your retail store does not? Maybe a rewards program would generate more repeat customers.
Think creatively and outside the box. You are both a consumer and business owner. What makes you as a consumer go back to places? What aspects create more value for you as a customer?
Lastly when you find a business process you think you can implement, think of ways you can improve their process. How can you do it even better than the previous business did? This is the type of thing that creates sustainable business advantages and quickly makes you the industry best.
Need help benchmarking or creating a SWOT analysis?
If you need help with benchmarking and creating a SWOT analysis, contact your local Kansas SBDC. We can help you conduct research of businesses in your area and develop ideas for improving your business.
About the Author
Abby Cahn is a Spring 2018 marketing intern for Kansas SBDC. She went to Cowley County Community College as a Secondary Art and English Education Major and graduated with an Associates in Arts. However, she decided business was the most beneficial route for her. Currently, she is a Fort Hays State University undergraduate student pursuing her degree in Business Management with a concentration in Entrepreneurship. She enjoys creating artwork, reading, and assembling floral arrangements. Abby hopes to open her own small business some day. She wants to teach people how to create floral arrangements and artwork, as well as sell them, from a small shop in Kansas. By doing this, she hopes to promote creativity and art as an outlet for communication, learning, and relaxation. She knows that one day if she needs assistance with her business she will go to her local Kansas SBDC.