Benchmarking in Business: Benefits, Types and Tips

By Indeed Editorial Team

Updated August 18, 2022 | Published November 5, 2020

Updated August 18, 2022

Published November 5, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Though many businesses rely on their own innovation, some find it helpful to analyze the competition. Benchmarking is the practice of comparing a company's metrics to other businesses to analyze what's effective in their respective industries. Implementing this process can lead to various benefits, including improved efficiency and increased sales.

In this article, we explain what benchmarking in business is, discuss the benefits of the practice, review the types of benchmarking and share tips your company can implement.

What is benchmarking?

Benchmarking is measuring key business metrics and comparing them to metrics from internal departments or competitors. Implementing this practice can help a company understand its strengths and weaknesses to optimize internal processes. Though organizations can have various approaches to benchmarking, standard goals include increased efficiency, revenue and customer and employee satisfaction.

Related: Business Tools: A Guide to Benchmarking

7 benefits of benchmarking in business

Here are seven benefits of benchmarking in business:

1. Increase efficiency

Performing regular benchmarks contributes to a company's overall effectiveness and efficiency by allowing it to identify potential areas of improvement internally. This is true for both sales and manufacturing businesses as well as service-oriented companies. Components that benchmarking can help improve upon include sales, marketing, support and advertising.

By looking at the most effective and efficient companies within the organization's industry or niche, you may have the opportunity to analyze whether they are more efficient and effective and use this information to support your company's improvements. Questions to ensure you assess other companies' efficiency and effectiveness in a successful way include:

  • What is the efficiency like within your industry or niche?

  • What makes the most efficient and effective companies that way?

  • What can you take from their business models and incorporate them into your own business?

Related: Different Types of Benchmarking Examples

2. Set clear business goals

Performing regular benchmarks can allow you to set clearer business goals for your employer. Understanding why the competition is successful can also give you insight that may help create measurable goals by defining success, developing innovative strategies and effectively monitoring your progress towards each goal. As you monitor your progress, be sure to make adjustments when necessary to accommodate changes in the market or changes within the company.

Related: What Are Business Goals? Definition, How To Set Business Goals and Examples

3. Provide new opportunities for discovery

Another reason benchmarking in business is important is that it gives you a way to discover opportunities for increased growth and success. This is especially important if your company is stuck or not moving forward the way you want. Performing benchmarks allows you to identify areas for improvement to get the company on par with the growth and success of other businesses in your industry or niche. By assessing what other companies are doing successfully, you can develop a plan to boost performance and take advantage of opportunities.

4. Increase sales performance

Strong sales significantly increase a company's overall success, but not having the appropriate insight to understand your sales performance can create a barrier. Benchmarking allows you to assess your sales figures and compare them to the most successful businesses in your niche or industry. For example, you could examine how much another company is selling, how many people are on their sales team, how many sales teams they have and whether your competitors are working with other major companies in partnerships.

There are several reasons why a business may have higher sales performance than your company. Common factors include marketing and advertising their products, offering perks to customers for repeat business and where they are selling their products and services. You should also consider the organization's internal situation. Assessing why a competitor's sales team performs well may help you determine what changes you can make internally for increased performance.

Related: 6 Tips for Building a Sales Team (And Mistakes To Avoid)

5. Motivate employees

Regular benchmarking in business also provides a great opportunity to rejuvenate employees and increase their overall motivation and contribution to the organization. The best benchmarking to improve employee motivation is benchmark tests that evaluate the competition's departments. You then compare these results to the departments within your company and set goals to match the competition.

When setting goals for employees, be sure they are attainable, realistic and measurable. This ensures everyone understands expectations and that each employee knows the goals they are working towards. It would help if you also implemented recognition or reward programs to ensure employees are recognized for their efforts and stay motivated.

Related: How To Motivate Employees in the Workplace

6. Better understand the competition

An apparent reason why benchmarking in business is important is that it allows you to understand your competition better. Understanding their methods of operation and what contributes to their overall success will let you expand your current operations and increase overall productivity and performance. While a competitor's metrics can influence its operations, they can also help define its unique value proposition.

Related: Business Competition: Definition and Types

7. Improve product quality

You can also use benchmarking to assess your current product quality and improve it. You might analyze how durable a competing product is or measure the customer satisfaction of the competitor's consumer base. From there, you can source the appropriate materials for your items and revise your approach to customer service to increase overall satisfaction.

Related: What Is Competitive Benchmarking?

Types of benchmarking in business

Here are common types of benchmarking in business:

  • Performance benchmarking: The process of identifying the difference between anticipated and desired results by measuring key performance indicators

  • Internal benchmarking: The process of comparing data from departments within a single organization

  • External benchmarking: The process of an organization's data with data from a competitor

  • Practice benchmarking: The process of collecting qualitative information about a specific business operation

  • Strategic or competitive benchmarking: A strategy in which a business attempts to emulate specific standards of world-class organizations

Related: What Is Benchmark Testing? (With 7 Steps To Use It Properly)

Tips for successful benchmarking

Here are some tips to keep in mind when benchmarking in business:

Determine areas of improvement

Targeting specific areas of improvement is often more effective than simply trying to increase performance everywhere within your company. Focus on areas where the company is not performing as you'd like and use this knowledge to benchmark the appropriate departments and factors that make your competition successful. For instance, even if your company has many areas for improvement, it might focus on improving customer service to comply with industry trends.

Related: What Is a Process Improvement Project? Tips and Benefits

Find the highest-performing companies

It's important to find the most successful companies in your industry or niche to benchmark. You can also look at successful businesses outside your industry that experience similar issues to your company and assess how they handle these situations successfully. Consider checking the company's published data and consulting third-party sources to verify the information.

Related: 4 Ways You Can Turn Your Business Into a High Performing Organization

Implement a performance improvement plan

After studying the competition, you can create a performance improvement plan and implement it within your company. This can help ensure you experience the benefits of benchmarking and improve your company's overall success. Implementation usually involves standardizing procedures and tracking tasks so you can measure performance and make adjustments as necessary.

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