Benchmarking to improve profits and the value of your business

Bruce Roher • August 22, 2018

Benchmarking is a technique used to assess whether your business is running optimally by comparing key performance indicators to target benchmarks or industry best practices.   You can compare your company’s metrics to those of competitors, or against targets established within the company.  If your business is large enough, you can compare one division with another.

Financial benchmarking

You can find data relating to other similar-sized companies in the same North American Industry Classification System (NAICS) code for your business by using a free Government of Canada website.[1]  For example, comparing your gross profit percentage to the industry average, will indicate how effectively you are earning profits from sales. If your gross profit percentage is materially lower than the industry average, you should identify the reasons and consider steps to streamline and improve efficiency levels of your operation.  This can involve improvements in production techniques, time to fill orders, inventory management, etc.

The industry information can also be used to benchmark your company’s expenses as compared to industry averages.  This will allow you to assess whether you should put increased effort towards reducing expenses.  Financial benchmarking will provide your management team with insightful information to develop a more effective and meaningful strategic planning process.

Operational/Process benchmarking

In food manufacturing, you will want to set objectives to measure the quality, consistency and efficiency of your operational processes. This could include setting targets for defects, waste/scrap, quality of product, downtime, set-up time, time to fulfil orders, productivity level per employee, etc.  Once you have established objectives, you can then establish benchmarking data and “key performance indicators” (KPIs).  This is an excellent way to engage your team so that they understand what is important for the success of the business and profit improvement. You can then align performance measurement to improve employee performance and profitability.  It also can provide greater management accountability.

Employee benchmarking data can be critical to improving performance in your organization.  For example, consider data such as absenteeism rate, the number of suggestions by employees, attrition rate, training cost per employee, employee satisfaction index (measured by an employee survey), etc.

Sales/Customer benchmarking

On the sales side, KPIs can be established on items such as on-time deliveries, repeat customer sales to total sales, number of customer complaints, etc.  By using KPIs, you can measure how successful you are in reaching targets.

Improved Value of your business

It’s easy to see how your company has done in the past by reviewing your historical financial statements.  But to increase profits, you need to develop KPIs to measure and improve performance in key areas.

A company’s value may be determined by assessing the ongoing maintainable cash flow and then applying a multiple.  The multiple reflects the risk of sustaining the maintainable cash flow in the future.

By benchmarking and regularly analyzing KPIs, your business value can be positively impacted in two ways.  First, over time, decision making can improve and result in stronger cash flows, which in turn will increase the maintainable cash flow and therefore value.  Second, by developing a corporate culture of benchmarking, the strength of your management team and employees is improved and can be a positive factor in reducing the risk of the business. This can potentially increase the multiple applied to maintainable cash flow and, as a result, increase the value of your business.  Benchmarking can be invaluable!



  • Industry

  • Authors

Fuller Landau LLP logo

Close X
Skip to content