The end of the year is a busy time for business owners.
Yet even as you’re scrambling to handle the influx of orders (hopefully) coming in during the holiday season, there’s another important task you should add to your to-do list for the coming weeks: benchmarking.
What is Benchmarking?
Benchmarking is the process of using data to determine a specific standard for any metrics you measure.
For the analytics you have to be meaningful, you need some way to determine what counts as “good,” so you know how your results stack up. Benchmarking is how you define what equals good, average, and bad results for the main goals you’re tracking.
There are two ways to do benchmarking:
1. External benchmarking
External benchmarking is measuring your company’s metrics against data on how other companies similar to yours are doing. External benchmarking is especially useful when you’re just starting out and don’t have enough data yet for internal benchmarking, and any time you want to figure out how you fit within your larger industry.
But external benchmarking poses some challenges. Finding reliable data on how other companies perform is often hard, and if you’re comparing your results to those of a company that’s in a different industry, has a different budget, or is using different tactics, you may end up comparing apples to oranges. Nonetheless, it’s still worth doing some digging to see if you can find surveys or other research that provides useful benchmarks for what results are typical in your industry for a business of your size.
2. Internal benchmarking
Every business is unique. Knowing what counts as good in terms of your specific goals, audience, and budget will often be at least as valuable as figuring out how you compare to other businesses. If your company has been around and tracking results for at least a year, you can start creating internal benchmarks based on your past results.
Internal benchmarks help you measure your progress over time. Ideally, you want results to improve every year, or at least not get worse. Benchmarks are how you determine if that’s happening.
This post will focus on internal benchmarks specifically. They’re the best way to measure your progress year-to-year, which makes internal benchmarking a valuable New Year’s project.
Why End-of-Year Benchmarking is Worth It
Is benchmarking really worth your time when you’re so busy with other things? Absolutely. A New Year is a good time to take stock of your progress. You can only understand your progress if you can measure how you’re doing now against how you’ve done before.
With internal benchmarking, you can set better goals based on standards that are realistic because they’re data based. And you’ll plan your marketing strategy more effectively, because you’ll have a better idea of what’s working and how to measure your success in each channel.
Those benchmarks will also serve you well throughout the year because you’ll be better at noticing when results are slipping in one of your channels. Once you’ve clearly defined what “normal” looks like for your brand, a big drop to below it tells you something’s wrong. That could mean catching an error that’s costing you big faster.
And having clear benchmarks makes it possible to more directly measure the effectiveness of new strategies you try. If you invest a lot of money and effort into a new campaign, seeing how the results measure up to the metrics you achieved at the same time in the same category last year enables you to determine value in tangible terms.
How to Create Internal Benchmarks Based on Last Year’s Metrics
Creating benchmarks requires work and time, but it’s a fairly straightforward process.
1. Define the metrics to track.
Your first step is to define what you’ll be creating benchmarks for. Try to think of every area you’d like to improve in that’s measurable here. This may include:
- Website traffic – Tracking how many people visit your website tells you a lot about the level of awareness people have about your brand and how well your online marketing efforts are paying off. And for eCommerce stores, it’s a necessary step in every sale you achieve.
- In-store sales – If your business has a physical location, then a big part of your website’s job is helping to drive foot traffic into the store. In addition to all the online metrics you track, also create benchmarks for your in-store sales as well.
- Online sales – Whether your business is eCommerce only, or sells items both in person and online, you’ll want to create benchmarks for the amount of sales you earn through your website.
- Average order value – When everything about your website or in-store experience is working well, the amount people buy on each visit will be higher. Tracking average order value is especially important for eCommerce sales where the business takes a hit in shipping costs. The amount you spend getting a package delivered is worth more if you’re profiting more from a bigger sale each time.
- Conversion rate – Each business can define what a “conversion” means based on your goals. The most obvious conversion rate to track is the number of website visitors that become customers, or the number of in-store shoppers that make a purchase. But you may also want to track conversions such as email sign-ups or setting up a sales call.
- Email subscribers – If you do email marketing, getting and keeping subscribers is necessary for it to pay off. In addition to creating benchmarks for the number of subscribers, you may also want benchmarks for email opens and clicks.
- Social followers – Social media’s another big part of online marketing, and earning subscribers is an important part of the social equation. Creating benchmarks for your number of social followers and engagement metrics like clicks, replies, and shares allows you to gauge your social media success over time.
- Customer acquisition cost – While some of what you spend on marketing is about raising awareness of your brand, rather than directly driving a sale, all of your marketing spend is meant to help drive new customers. Doing the math to figure out how much you’re spending in comparison to each new customer you earn is important for profitability, and thus a good benchmark to pay attention to.
- Average customer value – Earning new customers isn’t the only goal though, since not all customers are created equal. Earning customers with higher purchase sizes and those who buy from you more than once plays a big role in profitability as well. Average customer value is therefore another good category for benchmarking.
You may not decide to create benchmarks for every item on this list, and that’s okay. And you may have other goals that merit creating benchmarks that aren’t included here. Do what makes the most sense for your business based on what success means to you.
2. Find your company’s values for each.
Once you determine your list of metrics for benchmarking, mine your data to see what your past analytics show for each category. For traffic and conversions, head to Google Analytics. For your various marketing channels, the main tools you use for each should provide metrics. For instance, email marketing software products provide performance data, as do each of the main social media platforms.
Google Analytics can also help you track online sales, as can eCommerce software options. And for in-store sales, a good point-of-sale system should produce data that helps you track the information you need. To figure out benchmarks like customer acquisition cost and average customer value, turn to your accounting information. Accounting software products generally make collecting this information and finding insights within it easier.
When tracking down the specific values for each category, get specific. Look for averages for the full year, as well as for each month.This matters because most businesses have success rates that vary by season. If you sell bathing suits, comparing your results from last June to those of this January isn’t valuable, since there’s a reason people don’t buy as many bathing suits in the winter that has nothing to do with your marketing. Even for products with year-round uses, people’s buying habits change during the back-to-school or holiday seasons, for instance.
3. Set realistic goals for the coming year.
Once you’ve established your benchmarks, put that information to use. Use your benchmarks to create goals month by month, and for specific campaigns. Knowing, in clear terms, what your company’s already been able to achieve, you can set your ambitions toward a level of improvement that’s within reach.
Share your benchmarks and goals for the year with everyone that has a role to play in achieving them. All of your marketing and sales people should know what numbers they want to beat, and how much of an increase they ought to aim for.
Your benchmarks and the goals they inspire will also help you divide up your marketing spend more effectively. If you’re not seeing the levels of improvement in a certain channel you aimed for, you’ll know to scale back your spending there or try a new approach. Benchmarking will help you analyze where you’re getting the best return on your investment and how to maximize your results moving forward.
4. Measure your progress against your benchmarks.
Throughout the year, keep returning to those benchmarks. Each month, see how your results compare to last year’s numbers and the goals you set. With each new campaign you launch, use your benchmarks to better understand exactly how well it’s paying off. And if you notice a big drop in results in any area in comparison to last year, analyze why and make a fast decision to tweak your strategy to get those numbers back up.
5. Repeat next year.
Having last year’s data to use for comparison in the coming year is good. Having several years worth of data to see trends over time is better. Internal benchmarking is worth much more if you turn it into an annual project, so you can track your progress year by year. Analytics yield more insights the more data you collect, because you’ll be able to start spotting trends and have more information for comparison.
Internal Benchmarks Improve Strategy
You hear so much about data in the business world that it starts to sound like a buzzword. Having a lot of it can lead to as much confusion as value, if you don’t know how to use it effectively. Creating benchmarks in all the categories of measurement that matter to your business is one way to turn the data you have into insights you can actually use.
Use benchmarking to inform your strategy and measure your progress as you go. It will help you understand what works for your audience, how to improve results, and what kind of profits to reasonably expect in the months to come.
Kristen Hicks is an Austin-based freelance content writer and lifelong learner with an ongoing curiosity to learn new things. She uses that curiosity, combined with her experience as a freelance business owner, to write about subjects valuable to small business owners on the HostGator blog. You can find her on Twitter at @atxcopywriter.