Data-Driven Industry Benchmarks: How to Evaluate your Business Performance?

In the business world, knowing where you stand compared to the industry standards is a big part of success. Industry benchmarks are a data-driven method for measuring your company's potential against the competitors.

This article explains how to evaluate your business performance with industry benchmarking analysis. You will learn to find industry benchmarks and key metrics in their reports. Furthermore, we describe where you can see the industry data for competitive benchmarking.

Whether you're a seasoned businessman or someone who has just started their first company, join us on this journey to unlock the insights that industry benchmarks provide.

What are industry benchmarks?

Industry benchmarks are business metrics used to compare a company's performance against itself, industry standards, and competitors, helping identify areas for improvement. These benchmarks can consider many quantitative and qualitative indicators, such as revenue growth, customer satisfaction, and operational efficiency.

External benchmarking is a business performance evaluation that compares your company to others. In contrast, internal benchmarking determines which departments are leading and which ones are behind. Such benchmarks work exceptionally well if you have many similar entities, such as chain restaurants or numerous call centers.

Ongoing monitoring benchmarks are crucial to staying in the loop within your industry. There might have been a time when following the press and checking annual reports sufficed, but not today. As you read this article, companies (hopefully, including yours) collect heaps of publicly available information about their competitors to make data-driven decisions, confirming the old adage by R. W. Emerson that there is no knowledge that is not power.

How to find industry benchmarks?

Industry benchmarks are calculated by collecting and analyzing public data across a group of entities. For instance, a law company might collect financial and performance data from a wide range of competitors. This industry data often includes key metrics, such as revenue growth, operational costs, and gross margins.

How to conduct an accurate industry benchmark analysis?

Competitive benchmarking analysis is a process that allows organizations to compare their performance against the industry or competitors. This will enable them to identify areas for improvement and adopt best practices.

First, each company's data is analyzed to determine key metrics, such as average revenue growth or operational efficiency. Later, the scores of all companies are used to get the industry benchmark.

Here's a step-by-step guide to conducting an accurate industry benchmark analysis:

Step 1. Define objectives and performance metrics

1. Look for opportunities to improve. Evaluate your business performance and strategies. Search for opportunities to enhance productivity, sustainability, customer satisfaction, and overall efficiency.
2. Set clear goals. Create targets that align with your goals, such as reducing churn rate or increasing cross-selling by 10% next month.

Step 2. Collect and prepare data

1. Document your processes. Understand your existing operations and benchmarks.
2. Collect data. Gather relevant information from your employees, customers, and VIPs. Use quantitative and qualitative surveys, interviews, and available internal data. Consider public databases, industry reports, and business datasets for external data.
3. Ensure data quality. Verify data reliability and freshness to guarantee accuracy.

Step 3. Find strategic benchmarking partners

1. Look for partners. Search for companies within your industry that use best practices or have significant achievements in your benchmarking areas.
2. Evaluate compatibility. Potential business benchmarking partners should have similar business models and goals.

Step 4. Analyze data

1. Compare performance. Use the collected data to compare your results with those of your benchmarking partners and, if necessary, with those of the industry.
2. Identify performance deficiencies. Determine where your performance can be improved and adopt the industry's best practices.

Step 5. Come up with an action plan

1. Formulate gap-filling strategies. Based on the insights gained, develop ways to address the performance gaps. Outline your steps using frameworks like SMART.

Implement changes. Roll out the changes, ensuring all stakeholders are informed and involved.

Step 6. Monitor progress and refine strategies

1. Track your progress. Regularly evaluate the impact of the changes you made by using set benchmarks. Adjust your strategies if needed.
2. Keep updating your industry benchmarks. Update your benchmarks according to the industry's best practices.

Step 7. Repeat the process

1. Review and adjust. After a set period, reevaluate your benchmark analysis to identify new areas for improvement and ensure continuous performance advancement.
2. Expand benchmarking efforts. Consider extending industry benchmarking to other business areas to cultivate a culture of continual improvement and innovation.

These steps allow organizations like yours to conduct a thorough and accurate industry benchmark analysis, helping them stay competitive and prepared for market changes.

What are companies comparing to find insights?

Companies use external and internal benchmarking to compare their performance with the industry standards and gain valuable insights. These comparisons usually measure:

• Financial health. Comparing revenue growth, operational costs, and gross margins.
• Operational efficiency. Evaluating total number of employees, productivity levels, and resource utilization.
• Market position. Assessing customer base size, service offerings, pricing strategies, and market share.
• Strategic alignment: Analyzing the industry's trends and averages to align strategy with market demands and opportunities.

With these comparisons, businesses can identify their strengths and weaknesses and plan improvements. This way, they can stay competitive and continue growing.

Key metrics in industry benchmark reports

Only you can decide what to include in your company's industry benchmark report. That said, there are quite a few essential metrics relevant to most businesses. If you're using the key performance indicators (KPIs) approach, they will likely be your industry benchmark metrics.

Financial metrics

1. Sales revenue. The total income from sales. A baseline for evaluating market position and growth.
2. Gross margin. The percentage of total sales revenue that exceeds the cost of goods sold (COGS), showing profitability per product or service.
3. Net profit margin. The percentage of revenue that remains as profit after all expenses. Shows the overall financial health of your company.

Operational metrics

1. Cost-per-unit. The cost efficiency of producing a unit of product. Vital for pricing and cost management.
2. Time-to-market. The time it takes to move the product from concept to market. Essential in fast-paced industries, such as catering.
3. Inventory turnover rate. How often inventory is sold and replaced over a period. A key metric for evaluating supply chain efficiency.

Customer-centric metrics

1. Net promoter score (NPS). The likelihood of customers recommending a company to others. Measures loyalty and satisfaction.
2. Customer retention rate. The percentage of customers who remain with a company over a given period. Important for assessing customer service and product quality.
3. Churn rate. The rate at which customers stop doing business with you. Crucial for understanding customer retention challenges.

Market position metrics

1. Share of Voice. A brand's exposure in the market compared to competitors. Often measured across digital channels to evaluate marketing effectiveness.
2. SEO performance. How well your content ranks on search engines. Impacts online visibility and lead generation.

Efficiency and productivity metrics

1. Labor costs and human capital ROI. The cost-effectiveness of the workforce and the return on investment in human capital.
2. Sales per employee. The average revenue per employee. Provides insights into productivity and efficiency.

Industry-specific benchmarks

1. Retail. Sales per square foot, warehousing costs as a percentage of revenue, and marketing costs in relation to revenue.
2. Manufacturing. Cycle times, order fulfillment rates, and days sales outstanding (DSO).
3. Software-as-a-service (SaaS). Customer renewal rates, billable utilization, and time to close a sale.

Strategic management metrics

1. Distribution cost as a percentage of revenue. Helps companies understand the efficiency of distribution relative to sales. Used by food and beverage businesses.
2. Ecommerce growth. Tracks growth in this area and highlights success in online market penetration.

When used properly, these metrics in industry benchmark reports allow companies to assess their overall performance. Companies can strategically improve their competitive advantage by identifying gaps and learning from industry leaders.

Where to get industry benchmarking data?

In the US, industry benchmarks can be obtained from the US Census, the US Bureau of Labor Statistics, local government, and third-party data.

The first two institutions have stats on profit and non-profit organizations nationwide, including employee demographics and industry-specific surveys. Some of the data might be a bit outdated, but it can still be used to draw valuable conclusions. The US Census and the US Bureau of Labor Statistics also aggregate information from other federal sources, making it a great starting point for finding industry benchmarks.

Local government is another excellent source for industry benchmarking data. While they might not have everything readily available online, contacting a representative should put you on track. Such information is especially helpful if your business is region-based, as the local population might have different preferences than your average US citizen.

Now, third-party benchmarking data is not available freely but is actually sold by the vendor. Usually, it's collected from public web sources and structured into specific B2B and B2C industry datasets. Among the most popular ones are firmographic data, employee data, and job posting data.

Once again, the freshness of such industry data is of utmost importance. Reliable data providers should offer at least monthly updates and quality customer support.

How to use industry benchmark reports?

Industry benchmark reports are business tools seeking to improve company or employee performance, refine strategies, and achieve growth. However, using these reports efficiently requires a strategic approach based on your business's needs. Below are the seven critical steps for harnessing the power of industry benchmarking.

1. Define your purpose and goals

Why are you utilizing industry benchmark reports in the first place? Are you aiming to evaluate your competitiveness, identify areas for improvement, or set performance goals? Clear objectives will guide your external or internal benchmarking efforts and ensure they align with your business priorities.

2. Choose relevant and reliable industry benchmarks

Consider factors such as industry standards and market dynamics. While plenty of industry benchmarks fit most companies listed above, you should always look for those relevant in your field.

3. Analyze benchmark data

Compare industry benchmark data with your performance. Are there any trends or areas of improvement? Data visualization with charts and dashboards can help comprehend the information and identify actionable insights.

4. Interpret results and identify gaps

Determine the leading causes behind any disparities, such as operational inefficiencies, positioning, or other reasons.

5. Find actionable solutions

Devise strategies to address identified gaps and capitalize on your strengths. Formulate precise action plans aimed at improving performance and competitiveness.

6. Implement and monitor progress

Continuously track your progress against industry benchmarks, making adjustments to stay on track. Regular performance reviews are critical for refining strategies and responsiveness to market changes.

7. Adapt and innovate

Treat industry benchmarks as guides rather than universal standards. Adapt them to suit your business and leverage them to drive innovation. Maintain your flexibility, and don't be afraid to experiment to stay ahead of the game.

Bottom line

There are three main reasons why strategic benchmarking is beneficial for businesses. First, it gives investors insights into your company's potential, helping build their trust. Additionally, it shows opportunities for growth and aids in setting strategic goals. Lastly, regular business benchmarking lets you make timely adjustments and maintain the focus on the company's goals.

Industry benchmarking is a powerful tool for improving performance and enabling strategic decision-making in business. By adopting a systematic approach and leveraging reliable industry data, companies like yours can gain insights, revamp operations, and reach sustainable growth.