A benchmark is an internal or external measure of how your business is performing. Benchmarking is also described as Best Practices and/or Ratios. Benchmarking is the most effective way to monitor and track the progress of how your business is doing, both good and bad. When you take a look at how you can make your business better or what is already working well within your business, information from the benchmarks will help you determine what should be your next steps.

You can use benchmarks to compare your business to itself or you can use them to determine how you compare to the competition. The type of benchmarks you use will be dependent on the type of business you are in, your industry and the information available about your competitors (i.e., is data available for free or low cost).

A great example of benchmarking is a yearly review for an employee. All employees have specific job functions in which need to be performed daily, weekly or yearly. Usually once-a-year a performance review is done with each employee to see how he or she is performing his/her job duties. The results will determine which areas need improvement as well as which areas the employee is excelling. This is much like benchmarking for businesses. By assessing your own company on a regular basis, you can determine what needs to be done to improve on the weak areas and capitalize on the strengths.

There are various ways to implement benchmarking into your business. Some ideas are to identify and address known problem areas, areas that can use improvements (these are not necessarily problem areas), and areas that are doing well. Establishing a plan for how frequently to preform benchmarking and which items to measure will help maintain consistency in your analysis.

Once the problems are identified, start with internal research to determine any possible establish quick fixes. Interviews with business owners or companies who are doing good in your area of weakness can be helpful for either establishing a new benchmark or for gaining ideas on how to improve upon a weak benchmark. Establish a positive relationship with a prosperous business to gain insight and ideas on how they overcame the obstacles your business is facing. Once this information is learned and collected, the most important step is to implement the information and continue to monitor results. A benchmark should be revisited at least annually, or as needed.

Benchmarking is an important role that the company leader should utilize to ensure the business is meeting goals and performing effectively. Adding benchmarks for different units or divisions of a business is good practice as well. Revisit your benchmarks yearly to ensure they are still relevant to your core business so that you can remain competitive and successful.