Competitive benchmarking: top 10 metrics [step-by-step guide]

Jeroen Lustig
Published on
January 27, 2022

Benchmarking is an essential tool for companies in the agri-food sector. It provides an objective measure of your business by comparing your performance with similar companies. Benchmarking allows you to see in which areas you are doing well and where you need to focus on improving. You might be thinking, “Our company is unique and we can’t be compared to others.” But by using certain key figures, you can compare your performance to that of your competitors.

Using key ratios for competitive benchmarking

In order to employ competitive benchmarking as a useful tool, you should have an open mindset to using data. Most companies only capture a fraction of the potential value of all data and analytics, because it’s not embedded in their way of working - yet. However, by leaning on data you can anticipate changing circumstances more quickly, and act with confidence. When deciding to work with data for strategic purposes, benchmarking is the best place to start. But where do you start? Which ratios are most suitable for your business?

Define what you want to know and the depth of what you are looking for

Firstly, ask yourself: what do I want to know? This usually depends on your strategic ambitions and the KPIs within the company. It could also be determined by the characteristics of the sector or value chain in which you operate. For example, a trader might prefer to look at working capital and gross margin, while it’s more interesting for a producer to look at investments and returns.

Secondly, define what depth you are looking for. The level of depth determines the volume and specificity of the ratios you’re going to look at. Do you look at OPEX as a whole or at the individual components, such as personnel and other operating costs? Do you look at capital employed turnover or at fixed asset turnover and working capital turnover?

Top 10 metrics within agri-food companies

In general, the topics in the agri-food industry are relatively similar even though activities may vary. Based on our 12+ years’ experience with financial benchmarking from ‘outside in’ we recommend the following metrics (ordered by topic):

Growth drivers: Compare the net sales growth over the last 5 years and the trend within these years – for yourself and each peer, but also for the total peer group on average. This gives you insights in the average growth pace of the market, yourself, and your competition, and if it’s accelerating or decreasing. Key metrics:

  • Net sales
  • Average net sales growth per year over 5 years (CAGR)

Profitability: The best profitability benchmark is the EBITDA or EBIT. By also examining the gross margin, you can understand the business model (e.g., added value, cost-leader). Be sure to clean the data of any exceptional items, and make the metrics relative to net sales or the sales volume to enable comparison between companies of different sizes. Key metrics:

  • EBIT(DA)
  • Gross margin

Cost drivers: Examine cost drivers to understand profitability, they show why a company has low or high profits, the development explains why profitability is going down or up. The Cost of goods sold, relative to net sales, indicates impacts from added value and raw material prices, while Staff costs and Other operating expenses provide insight into (in)efficiency – and what type of. Together this allows you to determine if your cost levels are on par with the market and if profit trends are market-driven or company-specific. Key metrics:

  • Cost of goods sold
  • Total Operating Expenses (OPEX), split into staff costs and other operating costs

Returns: Not many companies consider operational return ratios as a performance benchmark. This is a missed opportunity because the Return on Capital Employed provides the most comprehensive insight into the actual performance of a company. It even allows comparing companies with clearly different business models. This is because the Return on Capital employed considers the amount of capital that is required for the business, and contrasts that with the profits it produces (EBIT). Just like interest on your savings account. So it's the ultimate depicter of how successful a company is in generating money. Unravelling ROCE drivers allows you to have the full perspective. Key metric:

  • Return on Capital Employment (ROCE), in which the EBIT margin is compared with the required capital for the operation (fixed assets + working capital)

Capital and financing: How much does a company invest and how do they finance these investments? Is there financial room for further investments? This provides a picture of the strategy of competitors for the future, and how financially healthy/strong they are. It’s also interesting to compare investment levels with the growth pace and profitability: do they pay off equally for everyone? Key metrics:

  • Capital expenditures (net investments intangible fixed assets)
  • Net debt / EBITDA (how many years of profit does it take to redeem debt)
  • Solvency (how much of the assets are financed with equity)

Competitive benchmarking as a tool to make better strategic decisions

In benchmarking you look for similarities with other companies, and what those can teach you about yourself. You can’t compare a company that makes a very specialized application of milk with Netflix, but you can compare it with a company that does something different with milk. Especially the things that a company does slightly differently can tell you a lot about yourself: comparing apples to pears can help you broaden your perspective instead of hindering it. So don't just look for apples with apples, this way you only look ‘inside the box'.

Read all about this and the 5 other steps for successful benchmarking in our benchmarking report via the button down below.

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