Businesses that use financial benchmarking to compare their performance with that of competitors can better target opportunities in the market, set goals and lay out strategy, according to entrepreneur and business author Kate Lister.
Valuable financial benchmarks
to look out for include profit margins, sales and profitability trends, salary data and cost and revenue per employee. Industry associations usually have consolidated statistics, as do the Bureau of Labor Statistics and the U.S. Census Bureau, so these are good (free) sources of information. Owners can also calculate how well they are performing by paying for industry data - such as competitors' sales, credit worthiness and number of employees - from business credit monitoring firms, Lister says. These companies provide many of the same numbers that banks use to measure a company's performance. For the best results, owners should try to narrow the data to similarly sized companies that are in their regions. Benchmarking can also provide profit-enhancing insights for companies, according to Inc. magazine. It's more difficult for smaller companies to find exact matches when doing industry research, but finding just a few companies that somewhat resemble your business will be useful.