Have you heard of benchmarking? Do you know what it is? Really know what it is, not have just a vague understanding?
Most small businesses owners have heard of benchmarking. They think they know what it is, and have decided it won’t help their company. But, any business can profit – literally increase its profits – from it. If don’t you think you can benefit from it, take another look at the concept by answering the following questions.
What is the standard margin for your industry? What have your margins been for the last 5 years? Have they increased, decreased or stayed the same? Why?
What are your industry’s best practices for productivity? How does your employees’ productivity track for the last 5 years? Has it increased, decreased or stayed the same? Why?
If you want to be successful you should be able to answer these simple questions with facts and figures – SWAGs (sophisticated wild a** guesses) don’t count. Most small business owners can’t. We get too caught up in the day to day operations to see the big picture, which limits our ability to go to the next level.
It’s hard to get there if we don’t have a way to identify and capitalize on our strengths and limit our weaknesses. Benchmarking is a process which looks at what’s working and what needs improving in the company.
It creates specific data which help you make reachable goals, streamline operations, have more control, increase profits and improve your quality of life. Internal and external benchmarking can give you the concrete answers you need to achieve sustainable, long term success.
Internal benchmarks are set by figuring out how your company is currently doing (i.e. rework, amount of receivables, margins, profit and loss, productivity, overruns, billing, inventory). They give you a factual baseline to set future goals for improvement. Also, they can give you ideas about what systems you need to meet those goals, and how to monitor your progress to stay on track.
External benchmarks operate in the same way as internal ones, except they look at how your company compares to others in your industry. They measure your facts and figures against the standards and best practices of others who’re doing better and worse than you. They give you a real world way to evaluate yourself.
It’s impossible for a small business owner to know everything he needs to know to stay competitive. Internal and external benchmarking can give you the edge you need to stay ahead of your competition, especially since most of them aren’t taking advantage of it.
Just one more question – Why wouldn’t you take advantage of something that will make your life easier, happier and more productive?