How does your business compare to the competition? Are you more or less efficient? Do you have higher costs?
These are important questions because they are directly linked to how profitable your company is and how healthy it will be over the long term. But surprisingly few entrepreneurs have the answers.
The solution is to measure your performance in key areas and benchmark it against other companies in your industry.
Benchmarking is a simple and effective way to get a snapshot of how you’re doing in terms of productivity, cost control and other areas. Once you know where your business stands, you can start improving and reaping the benefits on the bottom line.
3 steps to benchmark your business
- Choose performance measures—Pick metrics that are relevant to your business. These can be a combination of industry-specific measures and general productivity or financial metrics.
- Compare against industry data—Next, compare your results against industry data.
- Use the results to improve—Use the results to analyze your operations to see where you can eliminate waste—whatever doesn’t add value for your customers. Regularly monitor your data to make continual improvements.
Measuring helps you manage
“You can’t manage what you don’t measure, and you don’t know where you stand if you don’t compare to others,” says Jorge Henao, a consultant at BDC who advises entrepreneurs on operational efficiency. “How do you know how well you’re doing or what you could be doing better if you don’t benchmark your performance?”
Benchmarking involves choosing performance measures you can use to compare yourself against other companies. Some will be specific to your industry. For example, a restaurant might track revenues per table. A warehousing business could follow costs per square foot.
Other measures are more general, such as sales per employee or productivity per hour worked. One key productivity measure used by BDC consultants is the Value Creation Index, which allows them to benchmark how much value a company adds per hour worked by employees.
Results can be an eye-opener
The results can be a revelation for entrepreneurs. With the help of a BDC consultant, Thomas Schluep pursued a benchmarking exercise at his company Entra-Matic, a door manufacturer in the Montreal suburb of Mascouche.
“It was an eye-opener. It helped me see very quickly where we were and how we could bring ourselves up to industry standards,” says Schluep, Executive Vice President at the company. “We found a lot of room for improvement.”
The results helped convince Schluep to invest in more productive machinery. The benchmarking exercise also helped rally employees behind an operational efficiency drive. With the help of the consultant, the company identified bottlenecks and wasted effort in its operations.
The efforts quickly paid off. Sales shot up 30 to 40% in the first five months after the exercise, Schluep says.
“We increased output and quality, while keeping the same number of people,” he says. “It’s been a tremendous motivator for our team.”
Benchmarking is a starting point
Benchmarking also had another benefit. It helped show Schluep potential gains if he were to invest in operational improvements. That gave him confidence to initiate plans to expand to a larger facility.
Henao emphasizes that benchmarking isn’t an end in itself: “It’s a starting point to target processes or activities that don’t add value for your company.”
He advises entrepreneurs to use benchmarking data to carefully assess their operations and identify wasted efforts. Examples can include idle machines, overproduction, unnecessary operations or work, excess inventory, inefficient workspace layout and inadequate employee training.
Not a one-shot exercise
“You get used to doing things in a certain way and it’s not easy to see activities that don’t add value,” Henao says. “That’s why benchmarking is so important.”
It’s also not just a one-shot exercise. Businesses should regularly review their performance data and adopt a continuous improvement culture, Henao says.
That’s what Schluep now does at Entra-Matic. “The tools help keep us on track,” he says. “We regularly look at the indicators and think about how we can improve.
“It has led to a cultural change in our company.”
A tool to get you started