Benchmarking your business

Benchmarking your business is claimed to help show you whether your performance is stronger or weaker than your competitors. This is argued will give you a better picture of where your business is at and where improvements are needed.

So I was interested when a client of ours brought a commercial package recently to benchmark his business. When he showed it to me what I saw is in each industry, there were only a small number of businesses plus the figures seemed strange, and when I checked, I discovered for privacy issues, they were unverified. It left me uneasy and for what it was I thought it was overpriced.

To be fair, although I am interested in benchmarking, I am a critic too of benchmarking. I know of two independent studies done by the US taxation department and another by a big bank in Australia that found little relationship between a business financials and its industry. What they saw is that even similar companies in the same sector had enormous differences. So overall from my experience, benchmarking a company to its industry is not highly regarded.

What it can be used is as a rough guide. Knowing, for example, that a business rent is typically x%, and I see a business having a much higher rental then x% would immediately lead me to wonder why do they need so much rent. This is what financial analysist do when using benchmarks. They want to see the differences to try to understand your business. For example, they know that a grocer next door to a market is going to have very different margins to a grocer in an expensive shopping centre.

If you are interested in experimenting with benchmarking, I suggest you go to the ATO website here.

These are certainly the best ones available to the public. They are free, and although they are unverified, they are least are from a source you can trust.