ONE OF THE most effective ways of benchmarking your performance is to compare it to other performances achieved. After all, there is no clearer evidence of what can be done than from those who are already doing it! Often the issue with this is finding a business that has enough similarities to yours to make comparisons relative; there is no point in a business heavily dependent on repairs looking at a larger store that specializes in diamonds if there is little overlap in similarities.
Fortunately, it’s easy to find a business that has exactly the same relevant statistics, product lines, even customers as yours – of course I’m referring to self-comparison against past performance.
To do this, grab your printouts for the last five years (YTD by department) along with your financial statements for the equivalent period. It’s time to dive into the numbers. Set up a spreadsheet and rank the performance by year across each of the categories listed below. This will be your league table.
Sales. How have these trended? A healthy business shows a steady trend of growth in sales, ideally in excess of the rate of inflation. Have your numbers been growing year on year? Take out the impact of Covid by disregarding this period if it has severely impacted your trading days.
Gross margin. This is gross profit represented as a percentage of sales. A healthy growth in GP will allow you to weather the impact of adverse events on your business and build a more profitable future.
Sales mix. What are your top-selling departments? A review of each year will enable you to see which departments have been the greatest contributors to sales. How does this look when comparing each year? Does the “league table” for departments change each season? If so, why? Have some of your departments lost their impact on your overall sales performance?
Wages as a percentage of sales. What is your cost of employees relative to sales achieved? Again, take Covid impacts out of the mix. Ideally, your wage bill should be consistent relative to sales achieved. Rank your performance year by year and see which year tops the table on this statistic.
Net profit. A growing business has a constantly improving bottom line. Which year has been your best performer, Covid impact aside? Is this the same year that performed best on gross profit margin? If not, it may show the impact of expenses increasing or decreasing, and it may be time to focus on this area of performance.
Your league table will provide interesting reading and a catalyst to seeing where performance has improved and where it has dropped off. Did the same year top all of the tables? If so, why? If it’s not the most recent year, what can you do to recreate this performance again?