KPI Benchmarking: The Ultimate Guide for 2023
What is KPI Benchmarking?
KPI benchmarking is the process of comparing performance metrics of one organization to those of similar organizations in the same industry. For instance, a clothing retailer may use KPI benchmarking to compare their sales per square foot to other retailers in the same industry.
KPI Benchmarking Framework
Identify the KPIs:
The first step is to identify the key performance indicators (KPIs) that are relevant to your organization and industry. These could be financial KPIs (such as revenue growth or profit margin), operational KPIs (such as customer satisfaction or order fulfillment time), or any other KPIs that are important to your business.
Example: If you are a software company, some KPIs that may be relevant include software uptime, user engagement, and customer retention rate.
Determine the benchmarking criteria:
Next, you need to determine the criteria for selecting the organizations against which you will benchmark your KPIs. This could include factors such as industry, company size, location, or any other relevant criteria that are important for your business.
Example: If you are a retail company, you may want to benchmark your KPIs against other companies in the same industry, with a similar store size, and in the same geographic region.
Collect the data:
Once you have identified your KPIs and benchmarking criteria, you need to collect the data from the organizations that meet your criteria. This could involve conducting surveys, interviews, or collecting data from publicly available sources such as industry reports.
Example: If you are a healthcare provider, you may collect data on patient satisfaction and quality of care from other healthcare providers in the same region or of similar size.
Analyze the data:
After you have collected the data, you need to analyze it to identify the best practices and areas for improvement. This could involve calculating the average and median values for each KPI, as well as identifying the top and bottom performers in each category.
Example: If you are a financial institution, you may analyze data on loan delinquency rates and customer acquisition costs to identify areas where you can improve your processes.
Develop an action plan:
Based on the results of your analysis, you can develop an action plan to improve your organization's performance. This could include setting targets for each KPI based on the top performers, identifying areas where you can improve your processes or procedures, or implementing new technologies or strategies to improve performance.
Example: If you are an e-commerce company, you may set targets for order fulfillment time based on the top performers in your industry, and invest in new technologies to improve your supply chain processes.
Monitor and adjust:
Finally, it's important to monitor your KPIs over time and adjust your action plan as necessary. This will help you to continuously improve your organization's performance and stay competitive in your industry.
Example: If you are a telecommunications company, you may monitor customer retention rates and adjust your marketing strategies to improve customer loyalty.
KPI Benchmarking Example
ABC is an ecommerce company that sells products online. They are currently benchmarking their store conversion rate against their main competitors to see how they are performing relative to their direct competitors.
Identify the KPIs:
ABC is focusing on their store conversion rate as the KPI to compare against their competitors.
Determine the benchmarking criteria:
ABC has chosen to benchmark their store conversion rate against competitors that sell similar products, are of similar size, and operate in the same geographic region.
Collect the data:
ABC has collected data on the store conversion rates of their competitors and their own store conversion rate. Their store conversion rate is 2.5%, while their three main competitors have conversion rates of 3.0%, 3.2%, and 2.8%.
Analyze the data:
ABC has discovered that their store conversion rate is lower than the average of their competitors, which is 3.0%.
Develop an action plan:
Based on the results of their analysis, ABC has developed an action plan to improve their store conversion rate. They will focus on improving their website design and user experience, offering promotions and discounts, and providing free shipping for certain orders.
Monitor and adjust:
ABC will monitor their store conversion rate over time and adjust their action plan as necessary to remain competitive within the industry.
In conclusion, KPI benchmarking is a powerful tool for organizations to identify areas of improvement and to see how they compare to direct competitors. By applying the framework outlined above you can gain key insights for your company.
