There are two main types of benchmarking, one is external, and one is internal. Each serves a purpose and although similar, they have different results.
This is what most people think of when the term benchmarking is used. It compares your data with other organisations in your industry. There are several sources of this information available. The two most extensive sources are University of Waikato and the IRD.
IRD Industry Benchmarks
The Inland Revenue has publicly available industry benchmarks for a growing number of industrial classifications. It is available on the IRD website in table format. We have it available in digital format which is easier to understand.
It is an interactive report with filters at the top of each page allowing users to drill down to specific industries,businesses and percentiles.
Industry benchmarks have been developed by the IRD from information provided in financial statements and tax returns. The data is useful to help you assess your business performance by comparing your business with others in your industry. They provide guidance on what figures the IRD expects to see reported for the majority of businesses in your industry. They also use industry benchmarking to evaluate the likelihood of being reviewed by Inland Revenue.
University of Waikato NZ Business Benchmarking Survey
The NZ Business Benchmarking Survey may be purchased from the University of Waikato or your accountant may have it available. If you have purchased the latest survey and it’s Excel version, we can supply it to you in digital format, on request.
Some industries do their own reports and franchises may also be able to compile data to benchmark their franchises.
So how is benchmarking used?
Look at key industry benchmarks for margins, labour productivity, profitability, stock turns, working capital performance and banking ratios to see how your business performs. Knowing a few key numbers can show you the key areas to focus on to improve your business performance.
Franchisors can also use the information to target assistance to poorer performing franchisees by implementing the best practices and procedures used by the top performing franchisees.
Internal benchmarking is useful were no external benchmarks are available or there is not any competition in your markets. Management can determine what the benchmark is for your relevant KPIs and then to follow through with making the changes necessary to achieve expected results
Benchmarking to improve profits:
- Gain an independent perspective about how well you perform compared to others
- Clearly identify specific areas of opportunity
- Prioritise improvement opportunities – focus on where the biggest gains can be made
- Set performance expectations and targets for yourself and staff
- Monitor company performance and manage change
A benchmarking process involving your team will:
- Improve understanding of the real opportunities and their priority at all levels
- Minimise resistance to change and get your team on the same page
- Foster a spirit of enthusiasm to do better than the external benchmark.
Whatever benchmarking you do, it is useful to go through the exercise regularly and track progress. How frequently you do it depends on your needs – every year or two if things are going well, or bi-monthly if you want to keep a close watch.
Integrating benchmarking into your organisation will result in valuable data that will encourage discussion and spark new ideas and practices for business improvement.
SMEtric has access to an extensive library of benchmarking material in NZ and Australia.
Find out where your business sits and where to focus for potential improvement. Close the gaps between your business performance and the best performers in your industry.