How to benchmark your business against competitors
When running your business, knowing how it stacks up against the competition is essential. While you want to maintain your small business's uniqueness and personality, comparing yourself to other companies can gain insight into what you need to do to stay competitive. In this post, we'll explore how you can compare your business with your biggest rivals.
Keeping an eye on the competition is integral to running any business. Whilst there are things you can control; product quality, pricing, suppliers and even wages, there are many you can't. External factors such as competition are just as important to have a good grasp on as what you can manage internally. If you don't understand what your competitors are doing, you can open yourself up to blind spots. These can impact your ability to make intelligent business decisions.
Let's say you are a business that finds that your sales are in decline. The immediate questions would be how, why, and what can be done to arrest the slide. Suppose you didn't notice that your main competitor suddenly slashed their prices to undercut you. In that case, you might play around for months trying to figure out what has happened and implementing the wrong strategies to address it. You may even conclude that your product or service is no longer popular when in fact, you just need to bring your price in line with your competition.
By understanding the strengths and weaknesses of competitors, your small business can position itself to compete better and gain market share. Additionally, monitoring competitors can help you identify new opportunities or implement new tools or processes to gain a competitive edge.
Step 1: Identify your competitors
To get started, you'll need to identify your key competitors. On the surface, this might seem simple, but it can be very nuanced. For example, suppose you operate a parking garage in the CBD. In that case, you may assume your competitors are other parking garages in your proximity. However, when driving into the CBD, customers will choose between on-street and off-street parking, public transport, ridesharing, or even getting a lift from family and friends. This distinction between direct (other parking garages) and indirect (public transport) is essential when considering your marketing and pricing strategies; how you differentiate between these options is vital.
There are several ways you can determine who your competitors are:
- Market Scanning: Conduct market research on other companies that offer similar products or services to the same customer. This can include both direct and indirect competitors.
- Industry Analysis: Review industry reports and publications to find information about the major players in a specific market or industry.
- Online Search: Search online for businesses in your area or industry that are potential competitors. Google is a good starting point.
- ABS Data: The Australia Bureau of Statistics (ABS) has high-quality data across various small business areas. It's worth reviewing average income, employees and other insights from there.
- Customer Surveys: Speaking to current and potential customers about other companies they consider when purchasing can provide insight into your competition.
- Keep an eye on the news, trade shows, and events. You may come across a new competitor entering the market.
Step 2: Benchmark yourself
Benchmarking involves comparing certain critical aspects of your business with your competitors. This allows you to assess where your company stands and what areas need improvement or further development. When benchmarking your business, pay attention to factors like customer service, product quality, pricing, brand, and marketing strategies. These elements play a prominent role in how successful a business is and can give you an idea of where you stand compared to others in the industry.
To conduct a comprehensive benchmarking exercise:
- Identify critical factors: List the most important factors for your product or service. Using the parking garage example, it could be proximity, pricing, security and opening hours.
- Ranking: Rank these factors in order of priority based on what you understand your potential customers want. Proximity and pricing may be the two most important for parking drivers.
- Weighting: Give each item a weight out of 100%. With the parking garage, proximity and pricing may have a weighting of 30% each, whilst security and opening hours might be 20%.
- Scoring: Give yourself an objective score out of 5 for each factor, or even better, ask your current or potential customers to do a survey. Multiply the score by the weighting to get the final result.
- Compare: Then do the same for your competitors. From here, you should quickly see what areas you need to improve or what parts of your strategy need to change.
Step 3: Review other landscape factors
Social media platforms are great tools when it comes to an understanding the competition. Social media analytics tools such as Hootsuite or Sprout Social can be used to track and monitor competitors' activity on platforms like Instagram and Facebook. This will allow you to see how much engagement they are getting from their followers and which type of content resonates best with their audience. Another avenue is Google Trends, a website where Google displays your location's most popular or trending searches. This is a free and easy way to keep your finger on the pulse.
Additionally, you can look at trends within the industry more broadly by tracking popular topics or hashtags related to your industry on Twitter or Instagram stories. A recent example is Scooters, which have become very popular for people to traverse across the city. As a parking garage operator, you may not directly pick up on this new competitor through the traditional route. Observing your customers on social media and testing things out yourself will help. Gathering all this data allows you to understand better how people perceive each product in the market and what strategies could work best for your business.
Step 4: Learn the characteristics of your industry
The Australian market is vast and varied, so it's vital to research specific trends within your local area and nationwide when looking at how your business compares with others in Australia. Gather insights on local demographics, customer spending habits, and upcoming events or holidays that could impact sales numbers.
Understanding these nuances can help inform decisions about product offerings or marketing campaigns tailored to customers within a particular region or city in Australia. Doing this research will give you some perspective on why specific competitors may be more successful than others. You can then generate ideas for what changes must be made within your company if necessary.
To help you get started, here are some basic small business stats that you can use to compare your business with the overall market:
- There are over 3 million small businesses in Australia.
- Small businesses employ over 5 million people in Australia.
- 60% of small businesses in Australia are family-owned businesses.
- 55% of small businesses in Australia are sole proprietorships.
- The most common type of small business is a retail store or a restaurant.
- The average annual revenue for a small business in Australia is $250,000.
- The average yearly profit for a small business in Australia is $50,000.
- The average lifespan of a small business in Australia is five years.
Step 5: Conduct ongoing reviews of your key competitors
Completing a competitor benchmarking activity should be something that you do regularly. It's not a 'set and forget' exercise. Competitors are constantly changing; consumer needs continually evolve, and the market never stands still. In addition to revising your benchmark scores, you should also consider if the weighting of the key factors needs to change. During a recession, the price of parking may become the most crucial consideration to drivers, so the weighting for this should increase. There may also be new factors that emerge. With electric vehicle sales skyrocketing, having access to charging stations could become a key consideration for motorists.
To keep an eye on your competitors, you can implement these simple strategies:
- Google Alerts: Set up Google Alerts for key industry terms and your competitors' names. You'll get an automated alert when new information is published about them online.
- Social Media: Following competitors on social media platforms like Instagram, Facebook, and LinkedIn can provide insights into their strategies, product releases, and partnerships.
- Mailing Lists: Signing up for your competitors' mailing lists can provide information about promotions, sales, new products, and other essential updates.
- Review Sites: Checking review sites such as Trustpilot, App Store, or Google Reviews can provide insights into what customers like and dislike about your competitors.
- Industry Events: Attend industry events, trade shows, and conferences to learn about new developments and strategies being used by your competitors.
- SEO Comparison: Keeping an eye on your competitors' SEO can give you a sense of how they are trying to rank on Google. Tools like SEM Rush will give you an idea of the keywords they are targeting.
Competitor Benchmarking FAQs
What is benchmarking?
Benchmarking is the process of comparing your business against similar companies or competitors in your industry to identify strengths and weaknesses, and identify opportunities for improvement.
Why is benchmarking important?
Benchmarking is vital because it provides valuable insights into your business's performance relative to your competitors. By understanding the strengths and weaknesses of other companies in your industry, you can identify areas where you can improve and implement best practices to enhance your business performance.
How do you benchmark your business against competitors?
Benchmarking your business against competitors involves identifying key performance indicators (KPIs) relevant to your industry and measuring your business's performance against those of your competitors. This may include conducting market research, analysing financial data, or gathering data through surveys or other methods.
What are some common KPIs that businesses benchmark against their competitors?
Businesses may benchmark common KPIs against their competitors, including revenue growth, profit margin, customer retention rate, market share, customer satisfaction, employee satisfaction, and efficiency metrics such as inventory turnover or order fulfilment time.
How can benchmarking help improve my business?
Benchmarking can help improve your business by providing insights into how your business is performing relative to your competitors, identifying areas where you can improve your performance, and helping you implement best practices that have been successful for other companies in your industry.
Are there any risks associated with benchmarking my business against competitors?
One risk of benchmarking is becoming too focused on competing with other companies rather than focusing on your unique strengths and value proposition. It's essential to use benchmarking to identify areas for improvement but keep sight of your strengths and competitive advantages. Additionally, it's crucial to ensure that the data you are benchmarking against is accurate and relevant and to avoid drawing conclusions based on incomplete or misleading information.
Benchmarking is a powerful tool that allows you to make meaningful comparisons that could indicate the direction to take your small business. From improving the product, adjusting the price, rethinking marketing strategies, and adopting new technologies. It also can help you remain competitive and make better business decisions to achieve growth and success. Now that you know how to do it, it's time to start, and we're sure you'll see the benefits of competitor insights in no time.