When you own or are starting a business, you need to implement benchmarking (aka Best Practices). This process helps to determine how your business is performing against your internal standards as well as your competition. Doing so will help you assess how effective or ineffective your business is performing in operations, customer services, sales, or other important areas. With this type of information a small business can make changes quickly, which could be the difference between thriving, surviving or closing the business.

There are many different methods of benchmarking. In this post we will discuss, financial, performance, and strategic benchmarks. With financial benchmarking you are reviewing how competitive and productive you are. Performance benchmarking is how well your product or services compares with competitors. And Strategic benchmarking is the process of reviewing how others are competing, and can include data from industries other than yours for comparison purposes.

The financial aspect includes doing a total financial analysis of your business. There are many accounting and financial ratios you can use, but the ones you choose should be meaningful to your daily operations. For example, a retail store would want to know the sales per square foot and a service business might want to know the profitability by client. The financial information will help you determine where you may need to adjust your spending, sales efforts, marketing campaigns or employee compensation in order to generate more profit or productivity.

Sometimes you may not care how your business compares with your competition, but you should be knowledgeable about how their product or service is performing in relation to yours. Are you loosing contracts to your competition? If so, have you found the one or two key reasons? Are your customers frequenting their store more often than yours? Or are customers spending more money with you or with your competition, i.e., how profitable is each customer? This process will help you to determine what you need to fix in order to be more competitive. This process can take a lot of time in order to complete because you have to gather the information, although some of it can be found within the numbers (i.e., your financial statements).

The last benchmarking aspect as to do with strategy. When you started your business you created a business plan which provided you with direction as to where you were going and how you were going to do it. Now that you have been in business for a few years, it is time to reassess your planning. This process will not only include the industry that your business is in, but other aspects from other industries that might be applicable to your business.

While benchmarking does take time, it can provide valuable information that you can use to improve your business. The different types/methods of benchmarking can be used together for a more accurate picture of where your company is in relation to your competitors, the industry, and your own internal goals.