What is benchmarking?
7 min readAt-a-glance visual reports help you see the big picture and give you actionable insights to help you grow your business. Data leads to insights, and insights lead to better decision-making across business areas. This is a crucial benefit touted in a 2020 report by the Association of Chartered Accountants (ACCA)—along with better risk management, real-time performance insights, and proactive and predictive capabilities[2]. Some of the locations were in high-cost markets (North America, Europe, Australia), and others were in low-cost markets (Latin America, Africa, Asia).
- Just knowing the average cost of a new car is $40,107, a consumer buying a car for $35,000 might think they got a great deal.
- In recently working with a $500M CPG organization, we determined that the company’s closing cycle was 50% longer than its BOTTOM-PERFORMING peers.
- By comparing profitability ratios with industry benchmarks, you can determine if your business is performing well or if there are areas for improvement.
- It’s important to gather reliable data from reputable sources and ensure that it’s consistently updated over time.
We’ll guide you through the process of gathering and analyzing financial data, allowing you to interpret and evaluate benchmarking results with ease. Armed with this knowledge, implementing changes and monitoring progress will become second nature. Each customer’s main point of contact is a dedicated in-house, professionally-trained bookkeeper, based in North America. Part of what makes Bench unique is that we blend together the human touch with modern technology.
Implementing Changes and Monitoring Progress
These pillars are an aggregate of the 12 areas of firm competency that influence your firm’s overall proficiency. Excelling in each of these 12 areas—and the 4 overarching pillars—is how you will achieve a higher level of practice excellence. accounting for subscriptions revenue journal entry We have learned that the biggest issues facing firm owners around the world have nothing to do with technical knowledge. Instead, there exists a sizeable gap in the skills required to be a successful business owner and entrepreneur.
Workforce Salaries and KPIs
Based on the numbers, AP and AR should provide those opportunities and Accounting should offer some improvements as well. This is a very different situation than if the company was publicly traded or has outside investors to report to. In my previous blog, I provided “real-world” examples of how benchmarking data can identify areas of opportunity within your F&A organization, helping to lay out a strategy to increase productivity and automation.
As you can see from this example, the use of benchmarking data analysis can provide real insights into the opportunities that are available for cost and productivity improvements within an organization. To provide the client with further opportunities for cost savings, we analyzed the opportunity to utilize outsourcing for the transactional roles being centralized. For General Accounting, the company was performing at almost 50% above the Median performer, but there are still opportunities to drive additional performance improvements in this function as well. Typically you can gain at least 20-30% efficiencies (lower headcount) through centralization and automation initiatives.
The firm will observe and measure the competitor’s operations, and in some industries, it will send in employees as customers to gain direct experience. Using these best practices will allow you to compare your performance against industry standards and make informed decisions to drive growth and success. Start by identifying areas where you can make changes to enhance your financial analysis. This could involve adopting new tools or technologies, hiring additional staff with specialized skills, or improving processes within your organization. Addressing these weaknesses head-on allows you to make necessary improvements and stay ahead of the competition.
People often ask me this, and there seems to be a general assumption that benchmarks and KPIs are the same thing. Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity. He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations. He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.
Once you have identified these areas for improvement, develop actionable strategies to address them head-on and ensure long-term success in the competitive landscape. Benchmarking can be easier to understand if you think of it outside the realms of business. If the only goal of having that information is to spend less on a car, a consumer might make a bad deal. Just knowing the average cost of a new car is $40,107, a consumer buying a car for $35,000 might think they got a great deal.
Compliance Without the Pain: Financial Regulation Made Easy
Download the latest report to see how other financial leaders like you are staffing for today’s accounting and finance environment. To stay one step ahead of your competition, sign up today to our exclusive newsletters to receive exciting insights and vital know-how that you can apply today to drastically accelerate your performance. Employees in the finance and accounting department command a considerable annual salary. With a bachelor’s degree in finance, self-reported annual salaries from employees average $71,611[1] in the US.
This means that—as an example—a company making $1 billion in revenue per annum could be spending $8.5 million on the finance functions alone. The past few years have seen substantial industry-wide movement toward digitalization https://intuit-payroll.org/ in accounting. Accounting personnel are experiencing higher workloads than ever before, resulting in digital transformation initiatives to help offload low-level administrative tasks and increase throughput.
The company’s per FTE average cost for its F&A function was $78,000, compared to $54,000 for the Median performer. This higher cost was surprising given some of the low-cost markets in which the company operated. The overall opportunity to reduce its cost was significant, approximately $1,000,000 annually, based on the difference between their current level and the Median benchmark. Working the math, we would need to identify opportunities to reduce about 13 FTE’s to achieve the $1M annual cost savings, or 20% of the total staff. The case for benchmarking suggests that a particular process in your firm can be strengthened. Some organizations benchmark as a means to improve discrete areas of their business and monitor competitors’ shifting strategies and approaches.
Care should be taken to define benchmarking initiatives deliberately and scientifically, or the results could be misleading. As it is dependent on speedy and accurate service to maximize efficiency, cut costs, and increase profits, it will study the drive-thru practices of key competitors. Every second gained without sacrificing customer quality will allow the firm to increase its profits. Over the years, competitors have consistently innovated their drive-thru operations’ configuration, such as the number of windows, the menu, the speaker boards and ordering approaches in an attempt to improve their performances. To gather and analyze financial data for benchmarking, use various data gathering techniques such as surveys, interviews, and financial statements.
F. John Reh is a business management expert, with more than 30 years of experience in the field. A writer and journalist over the past 17+ years, he has covered business management for The Balance. David McGuire is a leading expert on cost segregation, fixed assets and depreciation law and a co-founder of McGuire Sponsel. If you’re several years behind on your bookkeeping and taxes, you can get caught up and filed with Bench Retro. If you’re switching from QuickBooks, we’ll work from your closing balances to do your bookkeeping going forward. If you’re not sure whether your closing balances are accurate, we recommend chatting with one of our Onboarding Specialists about Catch Up bookkeeping.
This is a good example of how benchmark data can provide insights, but not necessarily all of the answers, and why further analysis is required. A firm interested in improving their customer service practices may compare its own processes and metrics against those of its most successful competitor. If it identifies negative discrepancies or differences in measures, it may start improving its processes to strengthen its performance.
Avoid common pitfalls and mistakes when interpreting and evaluating benchmarking results. Take control by understanding the nuances, avoiding oversimplification, considering industry differences, and being cautious of misleading data or biased comparisons. Another key strategy for successful implementation is ensuring data accuracy and consistency. It’s important to gather reliable data from reputable sources and ensure that it’s consistently updated over time. Additionally, selecting appropriate benchmarks that accurately reflect your industry’s standards will provide you with more meaningful insights. Once the changes have been implemented, it’s crucial to track your performance regularly.
The company had F&A teams located at all of its manufacturing plants, focusing on localized financial operations, with specific (and unique) regulatory requirements for each country. The “rule of thumb” that can be applied to all organizations is that “Bottom Performer” is not where you want to reside, and “Median” is typically a more realistic goal if you are considering performance improvement initiatives. Traditional “Effectiveness” metrics focus on the operating cost for the various functions, such as the Personnel Cost to perform the activities within a function, and the Total Cost to perform these activities. Personnel Cost is based on the fully loaded cost of the people within the team, doing the work, so there is a direct correlation to the Efficiency metrics listed above.
With nearly 30 years of experience working with big names on Wall Street to healthcare and insurance, Paul has unique insights into the areas of cloud, security, platform, and compliance systems. He advises clients to benefit from growing digitalization by conducting digital benchmarking and leveraging the cloud. His key specialization includes engineering issues, operational security, and compliance controls. Controlling these costs and understanding competitor expenditure will keep your business on the right track financially.