What Is Competitive Benchmarking?

By Indeed Editorial Team

Updated February 14, 2022 | Published June 1, 2021

Updated February 14, 2022

Published June 1, 2021

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.

Tracking a company's performance is an important step in making smart business choices. Some companies analyze their internal metrics with data from other businesses to learn how they compare in a practice called competitive benchmarking. Understanding how competitive benchmarking works is a useful skill for business development professionals who want to get the largest benefits from their data analysis.

In this article, we explain what competitive benchmarking is and how it works, and share tips for developing a competitive benchmarking strategy.

What is competitive benchmarking?

Competitive benchmarking is a form of assessing business success by comparing a company's metrics with its competitor's information. Business professionals gather internal data and collect information about their top competitors then analyze the differences. The information you learn through competitive benchmarking can help you determine which business strategies and processes best contribute to company goals.

Related: Business Tools: A Guide To Benchmarking

Benefits of competitive benchmarking

Using competitive benchmarking has several strategic benefits for a business:

  • Contextualizing achievements: Comparing and contrasting benchmarks with different companies provides critical context for a business' performance. You can use benchmarking to learn industry norms and determine if the company is meeting expectations for its field.

  • Providing motivation: Knowing the extent of other companies' success can motivate you and your team to improve. Competitive benchmarking generates specific, attainable goals that you can strive to achieve.

  • Identifying opportunities: Competitive benchmarking data is useful for recognizing new business opportunities and areas for improvement. If a competitor performs exceptionally well in an area where the main company has low numbers, you can start researching ways to mimic their success.

Related: 7 Reasons Why Benchmarking in Business Is Important

Types of competitive benchmarking

There are several options for subjects to focus on when preparing a competitive benchmarking analysis. Depending on your business goals, you may focus on a single type of benchmarking or select multiple benchmark categories to build a comprehensive understanding of your field. Here are five benchmarking frameworks to consider:

Financial benchmarking

Financial benchmarking compares metrics related to income and fiscal performance. Use financial benchmarking to learn how a company's financial success compares to other businesses in its industry. Metrics for financial benchmarking include:

  • Total profit

  • Total revenue

  • Profit margin

  • Debt to equity ratio

  • Return on assets

  • Cash flow

  • Working capital

Strategic benchmarking

Strategic benchmarking reviews how a company's overall strategy compares to others in the industry. It uses metrics related to market performance and strategic initiatives. Strategic benchmarking metrics include both statistics and standard practices such as:

  • Technology use

  • Internal initiatives

  • Business model

  • Market share

  • Market concentration

  • Growth forecasts

  • Web traffic

  • SEO rank

Product benchmarking

To learn about how a company's products and services compare to other options on the market, use competitive product benchmarking. Product benchmarking uses metrics related to the cost and quality of a company's products:

  • Return rate

  • Defect rate

  • Material quality

  • Product cost

  • Profit per unit

  • Product features

Process benchmarking

Evaluate business operations compared to other companies with process benchmarking, also known as operational benchmarking. They describe the organization's operational methods, the procedures they use and their employee performance. Examples of metrics for process benchmarking include:

  • Average call time

  • Average hours worked

  • Response time

  • Tickets per agent

  • Employee turnover rate

  • Cost per hire

  • Customer acquisition cost

  • Energy efficiency

Reputation benchmarking

Measuring a company's reputation is another useful tool for determining its performance among other businesses. Reputation benchmarking focuses on data related to the public perception of a company. Here are several metrics for benchmarking a company's reputation:

  • Customer satisfaction rate

  • Net promoter score

  • Social media engagement

  • Brand awareness

  • Share of voice

  • Approval rate

  • Recommender rate

Related: Different Types of Benchmarking Examples

How to select competitive benchmark metrics

Follow these instructions to choose the best competitive benchmark metrics to meet your business goals:

1. Research competitors

Start by researching the general competition in your field. You can select specific competitors after choosing your metrics, but developing industry awareness is an important first step to selecting the right metrics. Identify aspects of competitors that you want to emulate, then brainstorm what metrics could connect to those successful characteristics.

2. Identify an area for improvement

Decide what aspect of the business you want to grow by comparing details with other companies. Focusing on one subject to allows you to select targeted, in-depth metrics and develop expertise about competition in that area. Consider what you could learn from each type of competitive benchmarking and to determine which metrics add the most value to your strategy.

3. Review key performance indicators

Use existing key performance indicators (KPIs) that you're already tracking as a starting point for competitive benchmarking. Many businesses practice internal benchmarking, which is comparing the company's current data to information from earlier time periods. By reviewing the KPIs a business uses to track internal performance, you can determine which ones provide the most value and use them for competitive benchmarking.

Related: A Complete Guide To Key Performance Indicators (KPIs)

4. Consider data accessibility

When choosing specific metrics for competitive benchmarking, determine how easily you can access data from other companies. Some business information is available to the public, while other types of data is private and difficult to obtain. Review your business resources and decide how much money you want to invest in data collection. If you have limited resources, select metrics that you can find for cheap or free. With a large analysis budget, you can pay researchers to estimate more complex metrics.

5. Choose groups of metrics

Pick multiple benchmarks related to the same subject to develop a comprehensive understanding of how the business compares to other companies. Metrics often influence one another, and assessing their relationships may reveal useful trends among the competition.

Tips for selecting benchmarking competitors

Once you know what benchmarks you want to measure, decide which competitors to include in your benchmarking strategy. Comparing your benchmarks to different companies may produce unique insights. Use these tips to select competitors for benchmarking that provide the most value:

  • Observe key rivals. Start by making a list of your primary rivals and direct competitors. Tracking information about your key competition is a good way to identify your position in the market and explore strategies for improving your numbers.

  • Track industry leaders. You can also benchmark against the top companies in an entire industry, even if the company you work with is small. Benchmarking with the most successful companies provides you with aspirations to strive for as the business grows.

  • Monitor potential threats. Growing businesses benchmark with small, emerging companies to understand possible threats to their success. Consider what you could learn from competitive benchmarking with smaller companies in your field.

  • Compare by size. Another method for selecting benchmarking competitors is exploring similarly sized companies in other industries. Although they address different customer groups, these businesses can show successful operating procedures and strategic initiatives.

  • Edit your list. Review your options across all competitor categories and compare the benefits of benchmarking with each one. Refine your strategy by choosing businesses that add unique perspectives to a benchmarking analysis.

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