What Is Business Benchmarking and Why Does HMRC Use It?
Benchmarking is the comparison that HMRC does on every business, comparing it with its competitors using the SICC codes.
This information is now available to you. So by comparing you to businesses in your sector that do things differently, you can see whether your results could be better if you did things differently too. By helping you to learn what is possible for others in your sector, it also makes it easier for you to work out what to do to improve your business and your results.
10 Proven Ways to Benchmark Your Business Performance
- Focus on your key business drivers – These are the processes that underpin the success of your firm, and will vary from sector to sector and business to business. If you provide a service, customer care is likely to be a key business driver; if you are a high-volume manufacturer, production-line speed will be a key business driver.
- Decide who to benchmark against – Your trade association or local business support organisation should be able to suggest benchmarking partners. Pick firms of a similar size and with similar objectives to help work out industry yardsticks; but also compare with firms outside your sector who excel in areas you want to measure – importing their approach could help you leapfrog competitors.
- Compare strategic objectives – Can you learn strategic lessons from benchmarking partners? Does a focus on quality standards give them an edge, for instance? Are they developing online sales channels? Think what other firms’ strategic objectives would bring to your business, if anything.
- Assess the efficiency of your processes – Look at the mechanics of your business – the production techniques, quality controls, stock management and so on. How effective are they? How well are you using your technology? Are other businesses benefiting from new ways of doing things?
- Analyse your allocation of resources – Are you putting resources into the same areas as your benchmarking partners? Do they have more employees, or fewer? In which parts of the business? Have they invested more in IT and other equipment? Are they spending more on marketing?
- Weigh your costs against industry norms – These might include utility bills, wages or research and development costs. If you can highlight areas where your costs are higher than the average, you may be able to make savings.
- Calculate sales per employee – This will provide a straightforward measure of productivity and efficiency. If your sales are comparatively low, investigate the reasons; you might find the problem is not with your sales but your product, or that you are pitching to the wrong market.
- Work out your profit margins – Your gross profit margin (direct profit on the cost of goods and services sold) will tell you how efficient your production processes are. Comparing this with your net profit margin (profit after all your costs have been taken off, including marketing and administration) will tell you how effectively you earn profits from sales. But how do you compare with other businesses? Should you streamline your operation?
- Measure your customer service standards – Customer service is a key battleground for businesses with similar products or services. Working out the proportion of sales accounted for by returning customers will give you a picture of your service levels, as will the number of complaints you receive and the time it takes to fulfill an order.#
- Obtain benchmark information without approaching an external benchmarking partner – You can benchmark your firm’s key statistics against widely available industry norms – salary surveys and published information on financial ratios for your industry, for example.
Key Financial Metrics to Include in Your Business Benchmark
-Year end
-Region
-Accounts Start Date and End Date
-Turnover This Year
-Turnover Last Year
-Gross Profit
-Interest receivable and similar income
-Interest payable and similar charges
-Profit on ordinary activities before taxation this year
-Profit on ordinary activities before taxation last year
-Owners’ market salary or drawings
-Tax on ordinary activities
-Total team costs
-Outsourced cost of sales
-Fixed Assets
-Current Assets
-Current Liabilities
-Long term Liabilities
-Trade debtors
-Stock and work in progress
-Number of employees
