An introduction to benchmarking your business against competitors
To keep your business sustainable, it’s crucial to be dynamic and evolve alongside customer habits and demands.
How do you know if you’re doing it right? By sizing up your business against the competition.
Knowing where you stand in the market – and where you want to be – provides context. After all, your view of your own business will always be limited if you’re not thinking about it in relation to the space it’s operating in.
By benchmarking your performance, processes, strategy or products against businesses considered to be the best in the industry, you can identify your own strengths and weaknesses. You can also gain insight into what customers value and potentially spark ideas for taking your business forward.
Competitive benchmarking is more important than ever in today’s market, with competition growing steadily: more than 200,000 new private businesses were established in the UK between 2018 and 2019, bringing the total up to 5.9m. That’s an increase of 2.4m (69 per cent) of businesses since 2000.
This guide will outline some of the main factors that affect competitive benchmarking, common mistakes businesses make and quick wins that can improve your strategy. The next step will be to use our action plan to direct your change and improvement.
What contributing factors affect benchmarking?
Your own KPIs
Before you start looking outward, it’s a good idea to do some internal analysing and think carefully about how you measure success in your own business. What’s important to your brand, both in terms of its values and its commercial viability?
This will help you understand which parts of your business can be improved and what your goals are for your benchmarking process.
The metrics you choose
Having established what success means, it’s time to work out what parts of your business to measure against competitors.
Do you want to check that your prices are still the most competitive on the market? Perhaps you want to make sure that you’re paying your staff fair rates for the industry, or that you’re providing some of the best customer service out there.
Think about market trends and how to measure your competitors’ reactions to these.
The competitors you choose
Unless you’re in a niche market, there will inevitably be a broad spectrum of competitors, both direct and indirect. To get the most out of your benchmarking activities, first define your target competitor. Which businesses should you compare yourself to?
The competitors you choose will depend on those KPIs you’ve been considering and what you hope to achieve with this research.
For example, you might want to get a feel for where you currently stand in the market, in order to inform your immediate sales and marketing strategies. If so, it’s a good idea to look to your closest competitors; the businesses which are most comparable to yours.
If you’re more interested in long-term planning and learning about how larger, more diverse businesses are succeeding, then look a bit further afield. This is a great way to get inspiration for growing your business and spark some ideas as to how to set the wheels in motion.
Alternatively, you might want to benchmark based on locality. In this case, you’ll need to take geography into account when looking for the most relevant competitors.
“I use a book called Agencynomics, which sets really clear benchmarks. Once we hit this revenue point, we should hire this person, once we hit that revenue point, we’ll need to change our system to allow this to happen – and so on. It’s given me a really clear path in terms of what we need to achieve.”
Naeem Alvi, founder of Notepad
The cold hard facts
Getting hold of information on competitors can be a challenge. Analyse online review websites and the social media channels of competitors. Research news articles, sales reports and press releases about your competitors.
There is useful information on Companies House and several companies conduct independent research for benchmarking. Of course, you can also conduct your own research by commissioning surveys.
Common mistakes of competitive benchmarking
Not collecting qualitative data
When it comes to benchmarking, numbers will only get you so far. Although figures are great for direct comparisons, they won’t tell you the whole story.
For instance, say you’re benchmarking against competitors on social media presence. Follower numbers are one metric that you might look at in comparison to your own – it’s easy to see who’s got the most and where you sit in relation to that. But those numbers won’t tell you why that business is doing so well when it comes to followers or how targeted that audience is.
That’s where you’d need to consider more qualitative data, such as the types of posts the brand is putting out there to help drive those numbers.
Trying to benchmark too broadly
There’s no point in trying to benchmark yourself against everyone you can think of, using all of the metrics you can possibly dream up. This makes comparison tricky and means you won’t be able to assess the performance of your business as precisely or define where you have the edge in the market.
It’s important to target your benchmarking properly, reflecting the needs of your business and what you want your efforts to accomplish.
Copying competitors’ strategies
Benchmarking isn’t about stealing ideas from your competitors. Trying to replicate what other businesses are doing without considering the purpose and values of your own brand is unlikely to be beneficial and will only confuse your strategy.
What works for one business might not work for yours. Whether you’re direct or indirect competitors, it is unlikely you’ll have the exact same KPIs, objectives and business plans. Take inspiration, but always align new processes and efforts with your brand values and your own nuanced ideas of what success looks like.
“If I am just trying to make things ‘better’ without knowing what I’m specifically trying to impact, how can I possibly work out after the fact whether I succeeded or not?”
Zoe Cunningham, managing director of Softwire
The cold hard facts
If you want to implement a strategy from a rival, consider how to put your own spin on it. Tweaking an idea to fit your business will have better results anyway. It’s also important to take inspiration from a range of sources – if there’s an idea you like, see if others have done similar things in related markets.
Quick wins for improving your benchmarking strategy
Build a network of peers
Competitors aren’t the enemy – there’s plenty that you can learn from one another. Building relationships and expanding your network is a great way to stay up to speed with the challenges and innovations that business leaders are seeing across the market and gather some useful benchmarking data.
Research existing networks of fellow business leaders – be it a social media group or more formal collective that you pay membership to – and get involved in the conversations.
There’s always the option to create your own networking spaces too. Reach out to other business owners and strike up a relationship. It could be mutually beneficial.
Look at digital tools that will do the hard work for you
Building up an overall picture of your competitors’ performance can require a lot of detective work. However, there are software tools out there that can do a lot of the heavy lifting for you.
These tools can collect data and insights on things like website traffic, social media engagement, campaign performances and even customer sentiment. This data can then be organised in a way that allows you to directly compare your own stats, whether you’re looking at competition sectors by locality or market alignment.
Take some time to research what tools are available to you and which make the most sense for your personal benchmarking goals.
Speak to your customers
You can measure stats until the cows come home, but without insight into what actually matters to your customers, how do you know which numbers really count?
Create a survey to collect insights from your customers about where they see your value. Find out what their expectations are, which similar businesses they use and the elements of your service that are most important to them: price, trustworthiness, customer service or convenience, for instance.
Send it out to your mailing list and include an incentive for filling it out, like being entered into a prize draw or given a discount code.
“It’s important to know and thoroughly research your market. This lets you get an understanding on what works, what doesn’t and what you can do differently to make a true impact. Sometimes it’s better to swim against the tide, so don’t be scared to do what you feel is best.”
Michal Szlas, CEO of OTTY Sleep
The cold hard facts
As Harvard Business Review noted in its case study of Xerox’s benchmarking practices, sometimes it’s better to use non-competitors for benchmarking of specific metrics, such as overheads or processes. You can share similar data with them and create a mutually beneficial relationship, without concern that you’re shooting yourself in the foot by helping out a competitor.
Now you’ve learnt about the underlying factors that affect how you benchmark your business against competitors, use our action plan to direct your improvement efforts.