It may seem paradoxical to suggest that watching your competitors will help you grow your business, particularly during start-up, when much of your activity is in uncharted territory.  However, many business owners expend valuable time and energy attempting to reinvent the wheel when potentially valuable information exists just outside their doorstep. 

Benchmarking compares your business with others, and identifies areas where you can improve your performance. Whilst the metrics you employ to understand how your business measures up may vary depending on your industry, the following six points are a good place to start: 

1.  Focus on a handful of key drivers

These are practices that strengthen the success of your business, and will vary from sector to sector, business to business. If you provide a service, customer care is more than likely a key driver; if you are a high-volume manufacturer, it may be production-line speed.

Our expectation of customer service transcends industries: focus instead on bridging the gap between service delivery and customer satisfaction by addressing customers' explicit wants AND their implicit needs.

2.  Decide who to benchmark against

Choosing businesses of a similar size and with similar objectives can assist in working out industry measures. It's helpful to compare businesses outside your sector that stand out in areas you want to measure – adopting their approach could give you a competitive advantage.

Don't be afraid to aim high – often the best motivation comes from finding a role model with a similar philosophy, rather than a similar bank balance.

3.  Assess the efficiency of your processes

Look inward at your systems including production techniques, quality controls, stock management etc. Ask yourself: How effective are they? How well are you using your technology? Are other businesses benefiting from new ways of doing things?

The evolution of the accounting function from software based systems to cloud technology is a good example of how everyday business processes can be streamlined, regardless of business size or industry.

4.  Examine your allocation of resources

Are you using your resources wisely compared to other businesses? Do they have more employees or fewer and more importantly, in which areas? Have they invested more in IT and other equipment? Are they spending more on marketing?

Flexibility is key:  you may not have a big budget or staff, but there are numerous low cost (or free) resources available, including online and virtual services, freelance and contract workers, smart technology and social media that can help improve business efficiency and effectiveness.

5.  Weigh your costs against industry norms

You might be able to make some savings by paying attention to areas where your costs might be higher than the average, for example utilities or salaries.

The boom in comparison services and (online) tools has eliminated much of the dreaded legwork that once accompanied a review of expenses, but it pays to be selective:  before relying upon a comparison service, check its source and if in doubt, use government or industry body sites.

6.  Determine your profit margins

Your gross profit margin shows you how efficient your production processes are. Comparing this with your net profit margin shows how effectively you earn profits from sales. This analysis helps you streamline your processes.

It is helpful to calculate business profitability each month to identify which months are most profitable and provide opportunity for timely pricing adjustments, so that you remain on track to achieve profit objectives.

It's easy to become absorbed in the day-to-day running of your business, but you must also be strategic and think long term.  Discover how market knowledge can be a strategic tool for business growth - get expert advice from our business advisors or register now to attend our next Ask an Accountant  workshop.