Competitive benchmarking

Interested in evaluating your organization's performance against your competitors? Competitive benchmarking can help you gain insight into your strengths and weaknesses relative to other businesses in your industry.

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What is competitive benchmarking? Why is it important?

Competitive benchmarking is what it sounds like – benchmarking your company against your most direct competition. Competitive benchmarking typically takes place within one industry and focuses on areas like product quality, customer satisfaction, market share, and operational efficiency. It allows you to identify areas of improvement and ways to leverage competitive advantage. Competitive benchmarking reveals your company’s relative position in the market, which can make way for better strategies for product development, marketing, and operations. Competitive benchmarking is important because it gives you a more complete understanding of the big picture within your industry by comparing your operational results with the competition.

6 steps to impactful execution of competitive benchmarking

Competitive benchmarking is essential for any business prioritizing market share.

Step 1: Define strategic ambitions. Focus on key areas to lead the market or improve competitiveness. Determine where to excel, such as efficiency or sustainability, for a smoother benchmarking process.
Step 2: Define the ratios you need to look at. To benchmark against competitors, use impactful metrics like staff cost and net sales. Determine the depth of metrics needed, such as operational expenses or individual aspects. Being granular allows for better comparison of decision-making.
Step 3: Select your peer group. The peer group you use for comparison should be your direct competitors. This means you focus on your peers within the market, and perhaps a few other players in similar situations outside of your industry. With competitive benchmarking, the goal is to see how your performance measures up, so you know how to gain a competitive advantage.
Step 4: Collect data. Focus on hard numbers like product quality, customer satisfaction, market share, and operational efficiency for competitive benchmarking. Find this data in your competitors' annual reports, and ensure it's formatted similarly for accurate comparison. Augment performance data with qualitative data like company news.
Step 5: Analyze the data for insights. Compare your numbers to multiple competitors to gain a long-term industry view. Determine your market position, where you excel and where you need to improve. Note the data collection time frame and approach from various angles. Valuable insights come from overall industry trends, not just individual numbers.
Step 6: Draw actionable conclusions. Evaluate the strategic ambitions you named in Step 1. Integrate the insights you’ve gained about your organization and your competition so that you can develop strategies and goals that you can realistically achieve.

What financial metrics reflect true business performance?

You can use several financial metrics to review and evaluate your company’s financial performance and to achieve goals and objectives. To monitor business performance, let’s take a look at some of the core financial metrics you should be tracking:

Metrics
Explanation
Revenue
To measure how much money your business operations generate.
Gross Profit Margin
To measure the percentage of revenue your business retains after subtracting the cost of goods sold.
Operating Profit Margin
To measure the profitability of your business operations after subtracting all operating expenses, excluding interest and taxes.
Net Profit Margin
To measure the percentage of revenue your business retains after subtracting operating expenses, including the cost of goods sold, operating expenses, and taxes.
Return on Assets (ROA)
To measure the efficiency with which your business uses its assets to generate profit.
Current Ratio
To measure your business's ability to pay short-term obligations like accounts payable and short-term debt.
Quick Ratio
Similar to the current ratio, the quick ratio excludes inventory from the calculation. It measures how well your business is equipped to pay short-term obligations.
Interest Coverage Ratio
To measure your business's ability to pay interest expenses on any debt it has incurred.

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