Thursday, Jul 24, 2014
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Benchmarks are so important


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One of the things that each and every business needs is a systematic way of evaluating their performance. Without quantifiable benchmarks, a firm has no idea if they are swimming ahead of the pack or just treading water.

Unfortunately, too many businesses use only last year or last month as their benchmark. Your own historical performance, however, does not give sufficient perspective to objectively evaluate how your business is doing.

One entrepreneur I was helping had been growing his business over 20 years. In that time, he had been very successful in so many ways, but his revenues had recently stalled out.

When I asked the entrepreneur how he was doing compared to the industry, he did not know. Next, I asked him if the industry was expanding, and he responded that he thought it was but was not sure.

I explained that being aware of how the industry is performing is necessary to truly understand how well his business is doing. For instance, if the industry is declining, his steady revenues are tolerable and actually pretty good by comparison. On the other hand, if revenues are increasing for his industry contemporaries, he is not doing very well at all.

After our discussions, he did some research and found that revenues across the industry were growing at a rate of 10 percent where his growth was completely flat. After seeing that, it was clear that his performance needed much improvement.

When I ask entrepreneurs why they do not use any benchmarks or comparables, the most common response I hear is that their firm is unique and there are not any other firms or industries out there that they can match up with. They say that it does not make sense to compare their local performance against national data because their location is so different.

You are never going to find a perfect comparison. The data you glean, however, can give you a rough idea of how other firms are performing.

Benchmarking only provides an indication of how you are performing relative to the field. From there, you need to dig much deeper to determine why your firm is underperforming. For example, if revenues in the industry are growing at a rate of 12 percent and your firm is at 2 percent, you know that you will need to do some thorough analysis to find out why your numbers are so far below the industry - taking your operating area into account, of course.

Now go out and make sure you have some benchmarking standards in place to help you measure the performance of your company.

You can do this!

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