How Benchmarking Can Grow Your Business

by Thom Tracy

2 min read

Incorporating benchmarked figures into your business is a great way to move toward success. Establishing these figures, tracking progress toward them, and evaluating your company’s position results in higher profit, happier customers, and greater overall success.

Customer Service

Establishing standards relating to customer service ensures your clients are treated correctly. Maintain goals restricting the length of a customer’s wait time or response time to respond to a customer’s email or social media query, or limit the number of informational requests you are unable to provide. Consider implementing feedback techniques such as surveys or reviews to gather ideas. Target a numerical way to improve this feature; for example, if you were frequently closed during normal business hours, limit this occurrence to twice per quarter.

Product Development

Numerous statistics and metrics can be gathered from product information. Using this information can result in stronger products, happier customers, and greater sales figures. Benchmark the number of returns due to unsatisfactory products, number of hours necessary to rework a product, and the amount of waste related to manufacturing a product. Track spoilage for goods that do not keep, and perform periodic inventory reconciliations to track if theft of inventory has occurred and how it compares to your acceptable contingent amount. In addition, set standards for how often new products are created, how often updates are made to existing products, and the average production time needed to make a good.

Liquidity/Operational Security

Taking numbers from your financial statements and manipulating them can easily return useful calculations regarding the safety of your company. First, liquidity is a measurement of your short-term ability to pay debts. Benchmark a financial ratio, such as the current ratio, and periodically calculate the metric. Investigate any reasons why the calculation may be unacceptable. Establish standards for how much cash to have on hand, inventory to hold, and amount of debt to be outstanding. These pieces directly tie to how well you can get external financing and how favorable the terms of the investment.

Leverage

If your business is operating smoothly with more than sufficient resources, benchmark leverage metrics to track the amount of risk you can take on. As more fixed costs are incurred, the risk of an operation is higher because regardless of the underlying operation, these fixed costs must be paid. However, once the fixed costs are paid, no additional related costs are incurred, meaning more profit retained for your company. For example, your company can benchmark to have 30% of expenses fixed or 80% of nonproduct costs fixed.

Exceeding Benchmarks

While exceeding benchmarked figures seems to always be positive, be mindful of excessive results. For example, if the current ratio is benchmarked at 4.0 and your company returns a calculation of 10.5, this may indicate success. However, it may also indicate that cash is being used inefficiently or low interest rates on loans are not being utilized. Another example is a 98% customer satisfaction rate that results in a 50% increase in product waste. Be mindful of the big picture and avoid getting hung up on single figures.

Related Articles

What’s Changed in the New QuickBooks

The new QuickBooks Online bookkeeping software has gone through quite a few changes. As…

Read more

Minimizing Physical Waste, Scrap, Rework, and Spoilage

If your business manufactures physical products, you probably deal with several forms…

Read more

Track Financial Trends with Ratio Analysis

The success of your small business hinges on you staying on top…

Read more