Benchmarking or benchmark analysis is the process of looking at other companies that are in your field, working out what they do well (or not so well) and orientating your business to fill the gaps that are open. In the context of small creative businesses this is particularly important. It means that you can position yourself to take on clients or find a niche that makes you unique whilst learning from others’ mistakes. Ultimately, it is a tool for identifying areas that can be improved on either in your own business or in others, and gives you the chance to enhance your competitiveness. But how to do it effectively and put your findings into practice? Well that’s where this article steps in. Benchmarking takes a bit of practice and it’s not a quick task but, when it’s done well, it’s invaluable!
Types of Benchmarking
There are different types of benchmarking which depend on what your needs are and what type of business you have. The three main types are:
This is probably the easiest to do. For internal benchmarking you need historic data from previous years or quarters to compare to how you are doing currently. This will help you to identify areas of success as well as weak spots that need developing. This process will allow you to make informed choices about where to invest money and what is slowing your progress. If you don’t yet have a business, you obviously can’t do an internal benchmark but remember what it is and put a recurring reminder in your calendar. That one little prompt will help you to stay on top of your business and be more objective in decision making.
This is the analysis that can make you stand out and give you a competitive advantage over others in your sector. Look at what companies or individuals in your niche are doing well (or not so well). How can you fill the gaps they miss? Can you identify something that they do well, but that you could do better? This is not an analysis that is prompting you to copy the product or services of your closest competitors. However, it sheds light on what you could be doing to stand out and gives you information on current market trends. This benchmarking analysis will be very useful to anyone considering setting up a business or going freelance because it means you can launch something unique without fear of entering a saturated market.
For this analysis you need to have done some form of internal benchmarking in order to identify what isn’t as successful as you had hoped it would be. Armed with this information and your own business strategy, you can then look at the way other competitors in your field are making a success where you seem to be falling behind. Take a look at their business strategy, understand how their process works, spend some time understanding what they do well and how you can improve in your own, unique way.
There are also other types of benchmarking analysis that are a little more nuanced. They usually form part of the three models above but can be done on an individual basis to narrow down the research field.
- They are:
- Functional: benchmarking to find potential business partnerships
- Process: benchmarking to improve processes within the company
- External: benchmarking to find best practises
- International: benchmarking to find industry leaders across the world
Identifying Key Performance Indicators (KPIs)
Whether you’ve heard of KPIs or not (and don’t worry if you haven’t!), these will become your new found obsession but in a good way. You probably already use KPIs just without knowing that this is their ‘official’ name. Similar to an internal benchmark analysis, they are quantifiable pieces of data that show long term performance and progress towards specific goals. Examples of this include setting a goal of reaching 10,000 people on your social media channels by February 2024, making 20,000€ per quarter or increasing traffic to your website to 100 clicks a day then watching and recording the progress you make towards reaching them. There are many different types of programmes that can be used for free to set up and monitor these KPIs. On many platforms you can link different sites to automatically monitor how your KPIs are progressing giving you instant insights.
For a great list of different platforms you can use, take a look at this page.
Data Collection and Analysis
Now you have set some KPIs, you need to work out how to collect data and analyse the information to make the next set of decisions for your business. This data collection can take many forms and each needs to be evaluated as to what information it can provide for you and if it will be helpful to you now or at a later date. This could be through internal records from your internal benchmarking and KPI projections, surveys of pre-existing clients or your social media following. Don’t forget the vital yet underestimated market research. Whatever information you find (or better yet don’t find) will give you valuable insight into how you could position yourself in the market and what the next steps are going to look like.
Once this data is collected there are various methods you can use to put all this information into action. Draw up a SWOT analysis, revisit your business model canvas or put your information into an analysis program to show you clustering of clients and trends. I’ll leave a list of possible useful tools here. If it all feels a little too much to do on your own the first time, why not reach out to a trusted friend for some support if they have experience in the field or check out the Flowerista website for help in managing your business.
Identifying Competitors and Industry Leaders with Benchmarking
How do you identify whether a company is a direct or indirect competitor? Well this is where your competitive benchmark analysis comes in. We will focus on direct and indirect competition in an article coming up early next year, but for now, here are the headline points:
Direct competitors are those who occupy the same market space as you, with a very similar product to you and marketing it to the same client group. It sounds concerning but having some competition is good, it keeps you on your toes but more importantly it stops monopolies and price overinflation.
Indirect competitors are ones to really keep an eye on because they too occupy the same market space targeting the same client base but they offer something different to fulfil the clients’ needs.
Make sure to do this type of benchmark analysis regularly to see how the market is changing and who the new entries are.
Setting Performance Targets
At this point, you have done the hard work: you have benchmarked using at least one of the 3 main ways mentioned at the start by analysing what’s out there, what you have done so far and what the business strategies are that work. You’ve set your KPIs and have some vision of where to go next. What’s left to do?
Apart from having a cup of tea (may I suggest these teas here as an excellent choice), it’s time to check up on some of those performance targets to see how realistic they are and whether they are achievable in the time frame you’ve set or with the resources that you have available. You might have been a little over enthusiastic setting that KPI of hitting the 100K profit each quarter when you work alone and in the last four quarters you made 80K in total. It doesn’t mean you can’t do it, but is it realistic? How will you put in place the processes to achieve it? Do all your performance targets match up to industry standards and best practices? If you can’t answer with a strong yes, then it might be time to take another look at why not.
Revisiting the work you have done and looking over your goals regularly keeps you up to date on what’s happening and means you can catch any potential problems before they become significant issues.
Challenges and Pitfalls of Benchmark Analysis
There are always going to be problems with any tool, be it productivity, business analysis, a screwdriver – you name it, there will be a pitfall somewhere. What could possibly be wrong with benchmarking? Well, I’m sorry to say that it mostly depends on you, the person doing the benchmarking and your mindset. Do not fear though, we have you covered!
One of the biggest issues that we all face is overestimating the abilities of others and underestimating ourselves.
Let’s take our direct and indirect competitors as a starting point. Overemphasising their threat to your business will leave you fearful and may well provide a block to creativity. If you are both in the market, receiving clients and making a profit then that means you are both providing value. Some people prefer your values or personality over the other provider and vice versa. Keep an eye on what they do, maybe reach out and create a coopertition relationship. Most importantly, have confidence in what you do because if you doubt yourself, it will be very difficult to convince others of your value.
Another problem could be your resistance to change.
Change is difficult and can be daunting especially if you are a very small business or you work alone. This company is your baby and sometimes we are too close to our market offering to accept the need for change and evolution. At this point, bring in a trusted friend, colleague or family member whose opinion you value, respect and will listen to. If there isn’t someone like that for you, reach out to a business professional for some guidance.
Finally, there is the quality of the data you have.
In the same way that greenwashing makes companies look far more environmentally focused than they actually are, companies can paint a very rosy picture of the real situation. Equally customer surveys are very dependent on the mood of the customer at that moment, the conscious or unconscious question biassing or the pool size of respondents. If this is the case, you will have to work with the information you have and do a little bit of trial and error – it’s the only way you will know for sure what works for you.
- Make sure you set aside some time on a regular basis to do some benchmark analysis. Remove distractions and throw yourself at it.
- Try to be objective with the information you find whether it is from internal sources or from research on the market and competitors.
- Ask for help if you need support to implement changes
- Don’t be afraid to set goals that are aspirational, but be aware of goals that are unattainable or will negatively impact you in some way in the process of trying to achieve them.
Good luck and let us know how you get on! For any questions, just get in contact!