It is so easy to get caught up in the single universe of your business and not take time to compare it to other businesses in your industry. Now before you exclaim, or at least think, “Pshaw!” please read on and I bet you’ll find at least one nugget that can help you assess and grow your business.
First, let’s define what benchmarking is. It starts with identifying a business process that can be measured with a key performance indicator (KPI), one that occurs in similar businesses to yours. Next, a survey is done to find which businesses perform the best with this process, and then this level of performance is considered the benchmark for THAT process. Monthly, quarterly, or at least annually, comparing your performance to the benchmark can help distinguish areas where you are doing well from those that need improvement.
Step 1: Identify the processes that are key to the success of your business. Then determine key performance indicators (KPIs) for these processes. These KPIs must be able to help you determine a future course of action, and provide insight into the most relevant information for better decision making and performance. For a veterinary practice, possible indicators include:
- new patients/month
- new clients/month
- monthly total revenue
- average charge/transaction/invoice
- # of patients undergoing anesthesia/month
- # of urine/fecal tests/month
Step 2: Decide who to benchmark against, but don’t necessarily stick to your industry. Perhaps a similar-sized firm outside your sector has similar objectives and excels in areas you want to measure. Using their approach may allow you leap ahead of your direct competitors.
Step 3: Collect data from companies to benchmark against, until you have a pool of several companies for each key indicator, ensuring you have top performers in each pool. Create a benchmark for each key measurement by choosing the best numbers from each pool of data.
Step 4: Assess your performance against your chosen benchmarks. Are your processes more or less efficient? More or less effective? Dig into the mechanics. For example, looking at profit margin carries much variability. Are your costs higher than industry norms? If so, is it payroll, utilities, suppliers? Or are your benchmarking “partners” allocating resources differently? More IT investment? More marketing dollars? Fewer employees? In which parts of the business? Calculate sales per employee. This is a straightforward measure of productivity and efficiency but if it’s low comparatively, you’ll need to dig further; e.g. is it the staff or the product or the target market? Is your gross profit margin in sync with the benchmarks, but not your net profit margin? Then perhaps your marketing and administration are not as effective as they could be. How is your customer service, in terms of returning customers, number of complaints, or other factors that fit your business?
Step 5: Now the even harder part. Adjust your processes, such as better incentives or better quality control or better pricing, and test them. Tweak the business process until you come closer to (or surpass!) a particular benchmark.
So, if your client base is going down and you’d like to pinpoint the problem area, what do you do first?
Answer some questions:
- What exactly is the client turnover rate?
- Is the decline steady or seasonal?
- Did the decline occur after another change in the practice occurred?
Determine KPI(s) needed: Turnover rate. This will be measured by taking the active number of clients at constant intervals. While you can use an annual interval, monthly or quarterly is best for noting seasonality and catching problems more quickly.
Turnover rate = # customers lost during the period / # active clients at the end of that period
If you had 1000 clients at the start of the quarter and lost 15, the turnover would be 15/985 or 1.5%.
At the next interval, you may have lost 20 more clients, so the turnover would be 20/965 or 2.1%
Next time, you lost only 5 clients, so your turnover would be 5/960 or 0.5%.
Now for the digging-in part. What change made from one quarter to the next could have caused the turnover to increase then decrease? Was it an anomoly or a trend? Since the trend seemed to reverse, did we change something that we can continue so the trend continues in the right direction?
This is a very simple example, but you get the idea! As with most things, the key is to ask the right questions from the outset, and then determine which measurements (KPIs) can provide answers to your questions. The more refined and relevant the KPIs, the more informed your decision-making and more timely your improvements. Happy benchmarking!