Internal and external benchmarking is critical to improving performance and maintaining a competitive edge. We explain how benchmarks evolve, how they can benefit your business and share examples of benchmarks by industry.
In this article:
- Examples of external benchmarking
- Strategic management benchmarking examples
- Examples of benchmarking analysis
- Internal benchmarking opportunities
What Is Benchmarking?
Benchmarking is assessing a company's key metrics and comparing them to peers — typically, a leader in their industry. A business may use benchmarking to measure its processes and service or product performance.
In external benchmarking, a company compares its metrics to competitors or others in a similar field. Organizations can also perform internal benchmarking and measure parts of their business to learn best practices from other departments. Comparing your performance to others — whether internally or externally — is a common way to gather improvement insights.
What can you learn from benchmarking examples?
Looking at benchmarking examples will guide you in developing your benchmarking standards. What you measure and compare to another company will depend on the areas of your business you’re most focused on improving.
What Is Practice Benchmarking?
Practice benchmarking is the act of gathering and comparing metrics evaluating how a company conducts an activity. The method looks at all aspects of a procedure, including the people, technology and processes.
The collected data, usually put into a process map, reveals performance gaps. Addressing the issues that arise from performing practice benchmarking leads to improvements and best practices that may apply and benefit other parts of the business. Companies can perform this type of benchmarking internally and externally.
Key Takeaways
- Reviewing benchmarking examples across industries can provide insight into areas of your organization that may need improvement and help you create benchmarking standards.
- Benchmarking can help companies decide which projects are worth investing in and implementing. For example, media companies may already have the data they need to benchmark across client campaigns, but looking at other industries can help them determine the merits of investing in new technologies.
- The evolution of business changes the benchmarks industries should be reviewing. For example, retailers today need to concentrate more on metrics related to marketing spend instead of sales per square foot.
External Benchmarking Examples
You can find examples of external benchmarking in just about every industry. Benchmarking examples can show a company how its performance compares against its competitors or peers or reveal areas they should be benchmarking.
When a company does external benchmarking, also known as competitive benchmarking, it starts by finding areas that would benefit the most from improvements. The organization identifies key metrics to measure and peers they want to benchmark against and gather the necessary data. The business will compare how well it’s performing against its competitors and then seek to implement improvements.
Companies will benchmark a variety of performance metrics. These measurements can come from all business units, including human resources (HR), customer service and finance, but what they’re benchmarking will vary. For example, benchmarking helps HR departments compete to attract and maintain the right talent. In customer service and call centers, benchmarking is necessary for efficiency and even survival.
Outsourcing customer service calls is a common practice in today’s global marketplace. A customer service department may benchmark the percentage of customer complaints. Typical benchmarks in this industry are average call duration, average speed of answer, average handle time, first call resolution rate, wrap time, average abandon rate, average time in queue, average time rep is live on the call, average time of after call work, overall service level, customer satisfaction and advisor satisfaction.
In healthcare benchmarking, a hospital may benchmark patient wait time. However, in this industry, benchmarks are quite different and vary by the type of institution. However, regardless of project or process, healthcare companies will follow the Plan-Do-Study-Act (PDSA) cycle for implementing changes.
In human resources, benchmarking is crucial for improving performance and keeping companies on the leading edge of their industry. There are many areas to benchmark beyond the typical HR costs, such as salaries, employee productivity, absenteeism and turnover. Benchmarking workers’ compensation, paid leave, staffing levels, employee engagement and organizational structure are also crucial to maximizing performance and return on investment (ROI).
Examples of Competitive Benchmarking
The metrics that companies benchmark will vary by industry vertical. Often, industry associations will have some performance data, but in many cases organizations need to hire a company that offers benchmarking services. These consultants specialize in research and will create benchmark reports based on all available data.
There’s a spectrum of benchmarks and KPIs that measure companies’ growth stages from foundational to transformative. A business can use this spectrum to understand how it’s currently doing and how to improve.
- Foundational: Results in the foundational level, likely indicate either a new business function or a known problem area. The organization should prioritize improvements here.
- Competitive: Competitive functions have established competency, but there is an opportunity for improvement. These businesses should consider making changes that will increase performance.
- Best in Class: This level indicates that the business is performing better than average in the category. However, they must continue to focus and boost operations to reach the transformative level.
- Transformative: If metrics fall into the transformative level, businesses are doing exceptionally well. They should strive to maintain this level of performance.
Retail Competitive Benchmarking Examples
The competition in retail is steep. Retailers evaluate sales per square foot, gross profit margin, inventory turnover, order fulfillment, marketing costs, customer satisfaction and warehousing costs as a percentage of revenue.
Sales per square foot was the most common retail benchmark before ecommerce became a critical sales channel. The growth of ecommerce has made marketing spend a more important metric to watch because companies can spend so much money acquiring customers that they’re losing money on sales of their goods.
Knowing how much you are spending on marketing as a percentage of revenue to attract customers is vital to understanding the true cost of doing business. With the popularity of just-in-time inventory, understanding items like your warehouse cost as a percentage of revenue also lets you know if you are running as efficiently as your competitors.
Retail Competitive Benchmarks
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Sales per Square Foot | <$223 | $336 | $510 | >$595 |
| Marketing as Percentage of Revenue | >4.2% | 4.2% | 2.9% | 2.0% |
| Warehousing Cost as Percentage of Revenue | >0.9% | 0.9% | 0.6% | 0.3% |
Manufacturing Competitive Benchmarking Examples
Manufacturers rely on multiple processes to produce and deliver goods through the supply chain. With two-day deliveries becoming the norm, manufacturing benchmarks like cycle times and lead times are crucial.
You'll want to look at KPIs like order cycle time, inventory turnover rate, fill rate, revenue growth, days sales outstanding (DSO), time to close books and customer service responsiveness. Comparing these results to the competition can inform performance improvements. Manufacturers should continually evaluate processes to meet or exceed industry standards in order to keep their customers happy and improve retention.
Manufacturing Competitive Benchmarks
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Order Cycle Time | >96 days | 84 days | 54 days | <24 days |
| Inventory Turnover Rate | <3 turns | 6 turns | 7 turns | 11 turns |
| Fill Rate | <97% | 97.0% | 97.8% | 98.5% |
Wholesale Distribution Competitive Benchmarking Examples
Inefficient and error-prone processes wreak havoc on wholesale distributors, but increased global competition is also a huge factor. Distributors need to respond quickly to customer requests, maintain strong inventory practice and fill orders on time. Buyers will move to other distributors better able to meet their needs if their existing partners are deficient.
Today, customer service is a top priority, and it’s one way distributors differentiate themselves. Common wholesale distribution benchmarks are customer service responsiveness, revenue growth, gross margin, inventory turn, fill rate and time to close books.
Wholesale Distribution Competitive Benchmarks
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Customer Service Responsiveness | > 1 day | > 6 hours | > 6 hours | Real-time |
| Inventory Turnover | <5.9 turns | 5.9 turns | 7.3 turns | 9 turns |
| Fill Rate | <98% | 98.0% | 98.8% | 99.5% |
Strategic Management Benchmarking Examples
Management teams monitor financial metrics to identify weaknesses and opportunities. This type of benchmarking focuses on competitors that are best in class. Understanding how these companies are achieving success can shed light on what adjustments your business should make to get on their level.
Examples of Strategic Benchmarking in the Food and Beverage Industry
A food and beverage executive will want to understand how their company’s distribution costs, ecommerce performance and time to make a sale stack up against the competition.
Food and beverage benchmarks like the total cost to manufacture, cycle time and machine downtime. This data can help them understand the cost of manufacturing their product and if their performance is in line with industry norms.
Food & Beverage Industry Competitive Benchmarks
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Distribution Cost as Percentage of Revenue | > 4% | 4.0% | 3.5% | 3.0% |
| Ecommerce Growth | <10% | 15% | 20% | >30% |
| Days Sales Outstanding | 65.4 days | 42.6 days | 32.6 days | 22.6 days |
Software Company Strategic Benchmarking Examples
With the shift from on-premises software to cloud-based services, there is mounting pressure on these providers to maintain a dependable recurring revenue stream. Software as a Service (SaaS) revenue is somewhat predictable, depending on the length of the subscription and how it’s modeled.
However, SaaS companies can still benefit from looking at standard software company benchmarks. Metrics software businesses should focus on are revenue growth, customer renewal rates, days sales outstanding, billable utilization and the time it takes to close a sale. Efficient accounts receivable and collections processes are critical for cash flow, so the company can invest appropriately and grow.
Software companies' KPIs often focus on goals to identify better-performing subscription models, processes or benefits that lead to renewal and opportunities to reduce the length of the sales cycle.
Software (SaaS) Industry
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Revenue Growth | 2.5% | 14.7% | 23.5% | 32.0% |
| Renewal Rate | 70% | 80% | 90% | >95% |
| Days Sales Outstanding | 102 days | 69 days | 57 days | 45 days |
Samples of Benchmarking Analysis
An essential part of benchmarking is analyzing the data you collect to draw a conclusion. For example, a simple revenue comparison is not indicative of anything important unless other data is available. This data may include company size, target customer, investments and geography.
An in-depth example of a sales benchmarking analysis is “How to Outsell the Competition: The Benchmarking Edge for Successful Sales Execution”. Benchmarking all sales functions helps bring data-driven decision-making to this discipline. Reviewing this sales benchmarking analysis will help sales managers focus on areas with the best return on investment.
Advertising Agency Benchmarks
Advertising benchmarks changed drastically as the sector shifted to digital media, which is much more trackable than traditional media. The shift from “one agency for everything” to project or campaign-based work is still happening today.
Agency-client relationships are shorter. So, agencies must choose projects that they can perform efficiently and clients that are profitable. Standard advertising benchmarks are project profitability, revenue growth, billable hours, profit margins, spend under contract, days sales outstanding and employee utilization. Using benchmarks to compare projects and processes will help agencies identify the most suitable projects for their team.
Advertising Agency Benchmarks
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Project Profitability | 3.32% | 7.13% | 11.10% | 15.07% |
| Revenue Growth | 0.00% | 6.09% | 13.50% | 20.14% |
| Gross Profit Margin | 32.9% | 46.5% | 60.1% | >61% |
Media Company Benchmark Examples
Media companies measure performance to demonstrate their value to clients and to increase their gross profit margin. Fortunately, these businesses may already have all the data they need to benchmark across client campaigns.
However, benchmarking against other industries can help these companies determine if they are managing their media costs efficiently. Moreover, with on-demand technology and immersive experiences becoming the norm, media companies’ benchmarks need to include new media revenue streams. Is being first to offer a new technology increasing revenue growth enough to cover escalating differentiation costs?
Media Company Benchmarks
| Foundational | Competitive | Best in Class | Transformative | |
|---|---|---|---|---|
| Revenue Growth | 0% | 3% | 9% | 14% |
| Gross Profit Margin | 24.8% | 31.4% | 48.0% | 57.8% |
| Days Sales Outstanding | 102 days | 72 days | 52 days | 46 days |
Internal Benchmarking Examples
Internal benchmarking is possible for all sizes of businesses, although it’s a more common practice for large enterprises. Companies with multiple divisions or branches or small businesses can use integrated business systems to simplify internal benchmarking.
For example, a large producer of goods can use such a system to benchmark activities across warehouses or teams. Baylis & Harding uses NetSuite’s integrated cloud business software suite to provide managers and executives access to relevant internal data that they can use to take action. The team uses benchmark KPIs to determine which business areas need improvement and share goals with key stakeholders.
Similarly, the restaurant chain Chipotle, with over 2,400 locations worldwide, uses data from all its operations to benchmark effectiveness. Having access to vital internal data in a single dashboard view was instrumental. Company leaders could use those metrics to develop internal benchmarks that have increased efficiency across the board.
#1 Cloud ERP
Software
Why Internal Benchmarking Is So Important in Making Data-Driven Decisions
Internal benchmarking will help a business establish company-wide standards and processes. These findings may impact any department. For example, one division may have a high-performing process that is useful to another branch. Implementing successful processes in other business areas can improve efficiencies and lead to being more competitive.
A unified business management suite like NetSuite ERP can provide companies with all the data they need from across the organization to perform benchmarking. This simplifies benchmarking by making it easy to compare the performance of different departments and your company’s numbers to those of competitors, once you have that information. NetSuite’s core platform comes with robust reporting tools, and its SuiteAnalytics application supports more advanced and customized analysis of all information. As a leader in analytics, NetSuite enables customers to discover insights, take action and accelerate growth.
Businesses often have a good sense of how they’re doing, but may lack a solid understanding of how their KPIs stack up to those of similar companies or even how the efficiency of the accounting department compares to that of operations, for instance. That’s where benchmarking comes in — it helps organizations uncover new ways to drive savings and productivity. Leaders must recognize that this practice has become critical to staying competitive today.
