Our brains just can’t help themselves – wanting to quantify, organise and figure out where we fit into the scheme of things. Comparing how your business is doing with other businesses can help you decide what to change and how to grow.
So, where to start? Here are three areas to get you thinking…
1) You – Your business and what to measure?
Some useful measures and benchmarks to calculate for your company are:
Sales (revenue) : What were your total sales for the last year? and how have your sales changed over the last few years? Compare to the previous year, and go back as far as is relevant for your business.
Sales revenue is the most common measure of a business size, but it’s important to understand how your sales figure is made up, so find out which product lines made up most of your sales, or which price points etc.
Profit: How profitable are you?
Looking at how much money you’ve made is great, but also calculating your gross profit margin and net profit margin will give you more information.
Gross margin is the difference between revenue and cost before taking into account other operating costs (e.g. admin, marketing etc). Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially), and usually expressed as a percentage:
Gross Margin (%) = (revenue minus cost of goods sold) / revenue
It will tell you how much profit is made directly on the goods sold.
Net profit is the profit with all the costs taken out (revenue minus total costs), including overheads and operating costs, so the actual money that you make from your sales. Net profit margin is usually expressed as a percentage, and is calculated by:
Net profit margin = Net profit / revenue
Company value: How much is your company worth?
Your Net worth figure is usually found at the bottom of your P&L / balance sheet and will give an indication of how much your business is worth financially – net worth is your assets minus your liabilities, giving a measure of how much value there is in your business.
Employees: How many people do you have and how productive and efficient are they?
Sales per employee (sales / number of employees) will give an indication of productivity and effectiveness.
Be careful when trying to assess your people with one number, as this can never measure their skills, how long they’ve been with you and staff turnover etc, so always look at other factors.
Average salary will give you a measurement of how much your spending on your workforce, which can be compared to industry averages.
Customers: How many, who are they and how do they interact with your company?
When assessing your customer base, it’s useful to consider:
Regency – when was the last time the customer interacted with your product/business? e.g. bought a product, used your service.
Frequency – how often do they interact?
Value – find a measure that represents the value of your business to the customer e.g. number of products purchased, how much money they spent in one transaction, how many features they use from your service.
Of course measuring customer happiness helps too, so how many complaints do you get each week or month.
Processes: How efficient and costly are your different processes?
If you manufacture products, then how many do you produce in a day? Or does it take ages to get a quote out to a customer? Review all your processes to see if you could do things differently.
Location: Location, location, location…
Location can be a key factor, as companies with the best location tend to have better sales than their competitors, all things being equal.
Look at the quality of environment for your workforce, how much it costs to recruit an employee to work at your office/site, distribution costs and rent and business rates.
2) Them – what are your competitors doing?
Who are your competitors? Write a list and make sure your monitor what they’re up to frequently.
Where are they located? And are they opening in new areas?
What is their pricing model?
How many employees do they have?
What technology do they use?
Have they introduced anything new lately?
Are they doing anything better than you?
Compare – benchmark and decide what do next.
Now that you’ve got all your measures calculated for your company, you can compare benchmarks relevant to your industry benchmarks, to see how you are doing.
Some useful places to look for benchmarks are:
Companies House – who hold financial information for all registered UK companies, some of this data is free; such as Net worth, assets and liabilities.
Salary checkers – what are the average salaries for your sector job titles?
Published financial data for your industry – are there any trade publications or market research that has benchmark data?
Credit scoring websites, Office for National Statistics
Looking at household data and other businesses not necessary in your industry may help you decide whether to open in a new location, and don’t forget about looking at your cost base, as comparing different suppliers for things like accounting packages, marketing activities may make you more efficient and save you money.
So go compare!
Whilst writing this blog, here are some sites, which helped: