How do you know if your business is operating optimally? A comparison of budget to actual results can provide insight. A comparison to the prior year or prior month can also tell a story. Let’s take it one step further, and compare your company to your industry peers. Welcome to Benchmarking!
The benefit of benchmarking is obvious, it helps you focus on areas that need improvement. A company that is operating below its peers will be valued lower, compared to similar companies with higher metrics. Benchmarking is an important component of your business management process and should be constantly monitored.
Benchmarking can address both financial and non-financial metrics and each industry often has their own unique benchmarking metrics. Common to most industries are measures of profitability, such as gross margin and EBITDA.
But where do I find benchmark data relevant to my company, you might ask? Benchmarking data is readily available. Most industry trade groups maintain financial operating data obtained from member surveys, which are updated annually. There are also private firms that compile financial and other relevant data that is either for sale, or often provided free if you provide survey data.
For Accounting firms, the Rosenburg Survey, is updated annually and contains over 100 benchmark metrics including billings rates, chargeable hours, realization percentages, staff to partner ratios, etc. In addition, data is presented by size and geographic location. For AICPA members, the Private Company Practice Section (”PCPS”) compiles an annual survey of accounting firms that is available to PCPS members.
For insurance agencies, the Independent Insurance Agents & Brokers of America provides Best Practices which contain benchmarking data of the key metrics of agency performance including revenue growth, profitability, expense management and productivity.
So the question is, how do you measure up? Take the Benchmark Challenge! Without data, you are just another person with an opinion (Attributed to W. Edwards Deming.)
Let us know if we can help.
John M. Byrne, CPA/ABV
Key Exit Advisors, LLC