Benchmarking for profitability

Guide

Looking beyond your financial report card


How is your business really performing? You probably keep a close eye on key financial metrics such as profit, revenue and margin. But what if that financial performance is being driven by general market conditions rather than your own capabilities or skilled management?

That's why benchmarking is so important. It allows you to compare your business to similar firms in the same sector – and it is one of the most effective things you can do to improve operations, productivity and profits.

Benchmarking is a practical reality check for business owners or managers. Sometimes you may think you’re doing really well but it’s simply because the market is booming.
Dan Evans

"Benchmarking is a practical reality check for business owners or managers," explains Dan Evans, Head of Real Estate for Macquarie Business Banking. "Sometimes you may think you're doing really well but it's simply because the market is booming – especially in real estate as firms tend to move up and down in line with the wider property market."

Benchmarking gives you insights into what outperforming firms are doing well. Evans says you may not get objective insights from your own informal industry networks and you also need to compare like for like – geographic location and size of business all play a part in performance.

A valuable source of independent data

Macquarie has released biannual industry benchmarking reports for the past eight years. "Relationship Managers are all industry specialists, so this gives us a unique opportunity to provide information of real value to our clients," explains Evans.

Macquarie benchmarking reports measure a full range of business performance metrics, from financial analysis to market sentiment and productivity. They uncover the latest industry trends and best practice data to help clients measure the performance of their business against industry peers.

"We constantly evolve the reports to ensure benchmarking helps clients improve profitability – it's not just a report card on the numbers they already see."

Benchmark reports can give you valuable insights into your industry – insights that not all your competitors have. So it's important to interpret those insights within the context of your challenges and understand whether your success is in line – or exceeding – the industry average.

Opportunities for change

Taking the time to get a clear strategic overview of your business can be a challenge for busy business owners or managing directors.

"We know they're strained for resources. They're handling a multitude of day to day tasks from recruitment to marketing as well as using their technical skills to generate revenue - whether that's selling property or practicing law.

A benchmark report can cut through all that to dissect the market and give a clear, simple understanding of how other businesses are improving efficiency, finding growth or managing their people" says Evans.

He says he has seen clients restructure pay structure and incentive programs as a result of benchmark comparisons.

"In one case, they moved from a salary-focused structure to an incentive pay structure which is attracting the right staff and helping them grow revenue faster."

He says firms may identify new revenue streams after seeing what top-performing firms in their sector are doing. "Our most recent residential real estate report highlighted the growing trend for property management as a ‘cash cow' for that sector, so we're seeing a few clients making the decision to purchase rent rolls." He says some agencies are also considering selling home loans or insurance products.

Evans says the most important metric to understand is the productivity measure for your industry.

"Your financial results are really just the output of what you're doing. To me, it's only useful as a way of highlighting the areas you need to focus on. So if your profit margin is below the industry benchmark you then need to look at your business to see where the gap is – are you underutilising assets?"

By benchmarking your business you'll get a true understanding of whether it is improving – or not. That new perspective will give you an edge over other businesses in your segment, so use it to your advantage.

What are you benchmarking?

Benchmark reports can give you valuable insights into your industry – insights that not all your competitors have. Interpret those insights within the context of your challenges, and understand whether your success is in line – or exceeding – the industry average.

Benchmarks to consider

  1. Financial performance – revenue, profit and margin
  2. People performance - profit or revenue per employee, recruitment and retention trends, ideal staff structure and remuneration, salaries as a percentage of costs
  3. Growth trends – mergers and acquisitions, valuation trends, alternative revenue sources
  4. Industry outlook – growth expectations, areas of investment, impact of technology.
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