Learn from benchmarking data
This hypothetical example shows you how you can use benchmarking information to:
- measure your performance against industry standards
- provide new ideas and innovation
- motivate you to introduce change into your business.
Bernard owns Cappuccino Craft, a coffee lounge and gallery in a busy street. He believes Cappuccino Craft could perform better, but so far he's simply followed the lead of the previous owner.
He sees that benchmarking could help Cappuccino Craft improve, so he:
- contacts his industry association to obtain information about industry benchmarks
- buys financial data from a commercial benchmarking business.
A profit driver is a business factor that has a significant impact on your bottom line. Bernard identifies his profit drivers as:
Bernard investigates his benchmarking data and puts the key information about his profit drivers into a table so it's easier to understand.
(The percentages are of total income, except for those relating to 'Sales and display area %')
|Business 1||Business 2||Industry Average||Cappuccino Craft|
|Cost of goods||45.20%||46.90%||46.78%||53%|
|Trading hours per week||46||48||44||38|
|Sales and display area||90%||92%||87%||75%|
Identify areas of opportunity
Bernard sees that he is performing well in some areas (e.g. overheads) but there are areas where his business is underperforming:
- cost of goods
- trading hours
- display area.
Most of Bernard's benchmarking data is financial. He decides to gain more information about the opportunities for his business by:
- asking customers to complete a survey
- asking staff for their feedback.
Analyse causative factors
The factors that affect a profit driver in either a positive or negative way are called 'causative factors'.
Bernard investigates which factors are causing Cappuccino Craft to fall below the benchmark.
Cost of goods: reduce
Bernard speaks to his staff and realises that they throw out quite a lot of uneaten food each week.
Bernard also conducts a series of stocktakes. When talking with other business owners in the area he discovers that his stock losses are significantly greater than other stores.
- an unsophisticated ordering system leading to excess food wastage
- stock loss through theft.
Trading hours: extend
Bernard looks at the results of his customer survey. It shows a majority of his customers would like the coffee shop to open on weekends.
He also speaks to his staff. They tell him that they suggested to the previous owner that she increase trading hours.
- The previous owner played competition golf on the weekend and Bernard thinks that's why she didn't extend trading hours.
Display area: increase
Bernard speaks to his staff and discovers that the previous owner reduced the gallery display area to increase the office space.
Bernard has a home office and doesn't need a large office in the gallery.
- Bernard has made minimal changes to Cappuccino Craft, even though he does not need the large office that the previous owner did.
Address causative factors
Bernard is ready to make changes to the factors that are having a negative impact on his profit drivers. He plans to:
- install a security system, including cameras, and provide staff training on how to reduce shop theft
- implement a more efficient, 'just-in-time' ordering system to reduce the amount of food spoilage and waste
- open later in the day Monday to Friday and open on weekends, extending hours of operation to 50 hours a week
- remove the office extension to increase the gallery display space.
Bernard reviews his business plan and includes these changes, budgeting for the extra costs and projecting increased income from additional sales.
Benchmarking helped Bernard to improve the performance of his business.