Does your business stack up?

By - , Build 138

Benchmarking techniques can help compare your company performance against the competition and identify areas for improvement.

YOU PROBABLY compare your new ute with your mate’s new ute. You probably compare results of your footy clubs and the size and number of fish you caught in the weekend. But have you ever compared your business with others?

Benchmarking allows businesses to compare themselves across a range of measures within their industry, so the business owner can see how they are performing. It requires you to know:

  • how much money you have made
  • your gross margin percentage
  • the level of your overheads, for example, advertising and vehicle costs
  • the amount of wages you paid.

Benchmarking allows you to compare these measures against other builders or trades and identify the areas of your business that are below average. This will help you focus on the areas for improvement, resulting in a stronger, more profitable business.

University benchmarking survey

Staples Rodway contributes to the Waikato University’s Benchmarking Survey by confidentially providing key financial numbers from clients to the university.

The university uses these numbers, sorted by industry, with similar data from other accountants around the country and reports back to us with the averages across these industries over different measures. We can compare our clients’ performance, with the goal of focusing on improving their business.

Results reveal national trends

The Waikato survey can also provide some interesting insights into industry trends. In 2007, 160 businesses nationwide involved in the house construction industry contributed their stats. In 2013, 230 participated.

As this period covers New Zealand’s latest recession, the stats reflect the impact on the industry. Interestingly, the impact is not as adverse as might have been thought. There has not been a significant drop in the average gross profit percentage across the industry over these years, with the stats showing a gross profit of 46% in 2007 and 45% in 2012.

With what I’m hearing, I suspect we might see a downturn in this margin when the 2013 survey results are released next year. The costs and overheads to run the business – including wages – are also stable at 28% of total turnover over both years.

Hip pocket takes a hit

The recession has hit the industry in a significant downturn in income over the 5 years, which is no surprise:

  • In 2007, average sales of the 160 businesses were $2,049,000 compared with $1,166,000 in 2012.
  • The average profit also dropped from $147,000 to $104,000, excluding the owner’s wage.
  • The number of staff employed by these businesses also reduced from an average of seven per firm in 2007 to four per firm in 2012.

These results could be skewed by the fact that the additional businesses contributing to this later survey are smaller. While this has an impact, I also believe these movements reflect the impact of the recession on businesses.

Information leads to action

As we’ve seen, while the numbers may have stories behind them, in providing this information, it allows for some interesting discussion and analysis. At the very least, it forces the business owner to drop the tools and focus on their business, and that’s always a positive.

There’s the old cliché – business owners should work on their business and not be stuck in their business. Benchmarking is one tool that allows this to happen.

So, how do you compare?

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