Benchmarking is important for accounting firms and their clients. If you are not setting benchmarks, monitoring and tracking results, you are not using the available data to make measurable improvements in your firm and your client’s businesses.
That being said, understanding, setting, and utilizing proper benchmarks is not always so straightforward. Here, I will go through the importance of benchmarks, how to set them and then how to use them properly to propel your clients’ businesses forward.
What are Benchmarks?
Benchmarking is using the data you have available in the business to measure performance, such as:
- Cost of business and profit margins
- Sales growth
- Time it takes to build, sell or fix products
- Customer satisfaction
- Etc.
In short, benchmarks are best defined by Cambridge English Dictionary as “standards for measuring or judging other things of the same type.”
Why Benchmarks are Important for Your Accounting Clients
You can have multiple different types of benchmarks, and they’ll look very different, depending on your clients’ goals. For example, you may have competitive benchmarks where you compare a client’s operations to their competitors.
Internal benchmarks are almost always part of the process because they can help clients improve products, processes and procedures.
Additionally, there are strategic benchmarks that may be used to find new, exciting ways for a business to improve its processes.
From a client perspective, benchmarks are important because they:
- Show how the business is doing compared to its competitors
- Indicate areas where operations can improve
- Alert stakeholders of issues that may occur in the future
- Improve client satisfaction
When working with your firm’s clients, it is important to focus on choosing the right benchmarks. Every business has data that is more or less insightful, and you will need to decide what is important based on the business type and goals.
How to Choose the Benchmarks You Use
Choosing benchmarks for your clients is a complex process that relies on the business’s goals and industry. For example, benchmarks will differ for:
- Manufacturing companies and construction companies
- Owners who want to work 10 hours a week versus owners who are okay with working 50+ hour weeks
- Businesses that are looking for exponential growth compared to ones that aren’t looking to grow but instead are focused on short-term profits
The benchmarks you choose should tie directly into the business’s journey to reach their goals. So, based on this information, where can you begin gathering benchmark data?
Gathering Benchmark Data
Data is available in many places to use for benchmarks, but you need to know where to go for such data. Two main areas where data can be found are:
Clients
Your clients have a lot of data available that they are likely not using to its full potential. It is up to you to ask clients for this data. You will want to request both financial and non-financial data. For example, you may request:
- Number of leads coming into the business
- Current conversion rates
- Sales information
- Cost-related information
Building off our example, you may find that the costs to produce goods have been rising but your client hasn’t been raising their prices enough to compensate. This is valuable information that you will want to benchmark to learn what needs to be done to improve profit margins. You may find that the price needs to be adjusted or that vendors need to be negotiated with.
Industry Data
Unless your client is in a very rare, niche industry, there will likely be a lot of industry data that can be gathered. After gathering client data, I typically gather data from trade associations. Trade associations are often surveying businesses to gather information on:
- Sales growth
- Employee costs
- Profit margins
- And much more
You can analyze the top and bottom 25% of businesses in the industry to learn what they’re doing well and what they aren’t. For example, what are those in the top 25% doing to generate leads? You can use this information to find opportunities for your clients to implement into their business.
Setting Benchmarks
The data you have gathered must now be put into meaningful benchmarks. You can set benchmarks for:
- Growth rate
- Lead generation
- Customer acquisition costs
- Conversion rates
- Average sales volume
- Operational costs
- Profit margins
- Revenue per employee
- Other business-related metrics
If you set benchmarks correctly, they can also provide insight into future potential issues. For example, you may be able to see a decline in sales is on the horizon because lead generation is down from previous periods.
Communicating Benchmarks to Your Clients
You may understand benchmarks and what they mean, but your clients will not appreciate the data if it’s not communicated to them properly. You should present data in a way that:
- Is understood by all stakeholders
- Shows whether the business’s changes are having an impact on key metrics
- Makes it easy to compare the business to previous periods
Data and benchmarks should also be available to employees and teams so that they can use them to advance business operations further.
Measure and Improve Using the Data You Gather
Finally, you’ll want to measure and improve operations based on the data. Dashboards are great for this task and can be used to show:
- KPIs
- Easy visuals for teams
- Percentage improvements or declines
It is essential to find a way to present clients with the benchmark data that is easy for them to understand and can be adapted as the business grows and changes.
Providing benchmarks for your firm’s clients will help provide them with a competitive edge if they are used properly. Gaining a competitive edge on the competition will take time, but monitoring and adjusting how a business is operated using benchmarks can help.
Christopher Hayden, CPA, CMA, CGMA is the managing partner of Hayden Nelson & Yoder, a CPA firm based in Pennsylvania. To learn more about him and/or the firm, CLICK HERE.
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