Benchmarking to Improve Your ROI

Benchmarking should be an integral part of your marketing strategy because it has serious implications for your Return on Investment (ROI).  If you’re not doing benchmarking or benchmarking the wrong elements of your marketing strategy, you’re not getting the profits you could.  Here are some instructions on how to start or improve your benchmarking.

What is Benchmarking?

According to Wikipedia, benchmarking is:

the process of comparing one’s business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time, and cost. Improvements from learning mean doing things better, faster, and cheaper.

What should you Benchmark?

Technically, anything you can measure can be benchmarked — sales, ROI, gross margin, allowance for bad debt, customer satisfaction, waste,  ANYTHING.

What SHOULD you benchmark is a better question.  Benchmarking has a cost associated with it — you have to measure, collect, and analyze data — so you should only measure the elements of your business that have the GREATEST impact on your profitability.  That said, it’s also good to benchmark elements that provide some insights on improving profitability.

A Benchmarketing Example

Maybe an example will help.

I worked with a company that manufactured cement for the construction industry.  Their profits were declining compared with similar businesses in the area.  Benchmarking profitability or sales tells you where the problem is.  If all similar businesses are doing poorly, then likely the culprit is the economy or some external factor.  If you are worse than others, likely some element of your marketing strategy is not optimal.  For the cement manufacturer, the offending strategic element is internal.

In their case, they couldn’t immediately identify which element of their marketing strategy was the offender.  Benchmarking against sales told them they weren’t doing their best, but it didn’t tell them what to fix to improve.  So, they went to customers and asked them where their pains were — what were they dissatisfied with.  His answer – late deliveries.

He decided to benchmark against Dominos pizza because they were doing their “30 minutes or its free” guarantee.  To make it interesting, he made a bet with the local Dominos — whichever business had the highest percentage of “on time” deliveries for the month bought the other business employees pizza.

Benchmarking by itself isn’t enough.  It just identifies problem elements.  You next need to figure out what caused the poor performance.  Deming argues that 90% of all business problems are the result of bad processes, not bad people.  So, the cement company owner looked at his process and discovered that most late deliveries occurred in new building sites where maps might have been somewhat incomplete.  He had his salespeople begin collecting information from customers when they placed an order to enable drivers to find the delivery location quickly and accurately.

After instituting this practice, he said they were eating a lot of pizza.

Steps in Benchmarking

Let’s break down this example into the steps leading to success.

1. Identify areas to benchmark

Certainly, areas such as profitability and customer satisfaction should be benchmarked by all firms.  Since firms vary in size and industries have different profitability, these should be framed in percentages rather than absolute dollars. Other benchmarks may be more particular for your industry.  Just be careful not to have too many benchmarks, ones that don’t translate into profitability in the long run, or ones that conflict with each other.

It’s tempting to believe you’re doing the best when you beat other companies in your industry, but benchmarking involves challenging the business to do more and thinking outside the box.  So benchmark against other industries and strive for their level of profitability.  For instance, Intel, at one point, had a mark-up of 2000 percent.  Now, your firm might not be able to come anywhere near that number, but it might make a good goal.

Chart performance toward achieving the benchmark standard and celebrate improvements.  Tie rewards to reaching milestones along the way.

2. Collect data to chart your performance

Much of this data is probably secondary data available from published sources — mostly on a fee basis.  Some data might need to be collected.  For instance, you may have to ask consumers to rank other companies relative to yours to determine how your customer service compares with theirs.

3. Process improvement

Determine which processes contribute to your relative performance.  This is a critical step because it doesn’t help to fix something that isn’t the problem.  A significant amount of effort may be required to identify offending elements of your marketing strategy and more effort may be required to fix the problem.

4. Implement change

Once you know where the problem lies, you can make changes.  Remember, change is uncomfortable and likely to result in some push-back from employees, vendors, or anyone affected by the changes.

• Establish intermediate goals and timetables for reaching these milestones.
• Create a supportive environment that encourages communication as you make changes.
• Tie rewards to achieving milestones and celebrate teams and individuals who contribute to the success of your change initiative.
• Ensure changes don’t negatively impact your existing reward structure and make arrangements for employees who will be negatively impacted by the change ie. new positions, generous severance packages, etc.

Continue benchmarking

Benchmarking is based on a process of continual improvement, so reaching a benchmark, while a cause for celebration, is not a time to rest on your laurels.  It’s a time to set new benchmarking standards and continue to move forward.

Need marketing help to support business growth?

We welcome the opportunity to show you how we can make your marketing SIZZLE with our data-driven, results-oriented marketing strategies.  Sign up for our FREE newsletter, get the 1st chapter of our book on digital marketing analytics – FREE, or contact us for more information on hiring us.

Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.