Finding The Bar

Benchmarking is the process of comparing an individual firm to the average of the whole industry or to specific competitors. This process can alert a firm to areas where it may be weak or to advantages that it may have been unaware of.  Benchmarking can help a firm that is trying to protect its market share by allowing the firm to “glance in the rearview mirror” to see how close the competition is. Or a firm that is a new entrant in the market can use benchmarking to find the minimum standards of the industry.

 

The difficult part of benchmarking can be finding the industry information. And if it is available, it often has to be researched and compiled. Entrepreneur Magazine has made the process much simpler. On their website, Entrepreneur.com, free access is provided to a database called the Business Performance Dashboard . The Dashboard pulls from a database of nearly 20 million businesses in over 20 industries that are broken into even narrower groups. The user simply selects the applicable industry. The website then retrieves data points ranging from annual revenue numbers to employee efficiency all of which can be sorted by number of employees.

 

For example, imagine I am starting a landscaping business. So I scroll down to Home Improvement and click on Landscaping. On the new page I can see that average revenue is $867,000. My projection was $1.1 million. I better double check my expense and sales forecasts to make sure I haven’t overlooked something. I also see a trend that the average revenue is decreasing over time. The industry may be getting more competitive. I scroll down further and see that the majority of firms have one to four employees. Small businesses are the norm here, but the few large firms are major players pulling in four times as much revenue. I better see if any of these giants are in my environment and if so, I may want to target a specific niche. The average age of firms in this industry is l3 years and there is a large revenue jump between the 1-3 years group and the 4-11 years group. This suggests to me that the first three years will be tough. But if I survive, at year 4 I should be able to reforecast and begin to enjoy the fruit of my labor. 

 

Other figures may have importance to you or you industry. The Business Performance Dashboard is a great starting place for benchmarking, but keep in mind it is exactly that, a starting point. More specific analysis of local or regional competitors and industry trends may be needed to get the best view of the market.