Budget benchmarking helps companies manage their finances by comparing their plans and results with their competitors. How can you introduce performance and budget benchmarking into your financial strategy? In what situations will such tools be particularly useful to you? What can you gain?
Budget benchmarking – what is it?
Budget benchmarking is the process of comparing your company’s budget plans and financial results with competitor data or industry standards. Of course, you do not have access to critical data from other companies, but using reports and analyzes is within your reach.
Why benchmarking in your company?
Benchmarking is a method that involves selecting a benchmark competitor (or group of competitors) and using it to identify your strengths and weaknesses.
It is important to remember that benchmarking is not about directly transferring competitors’ solutions on a 1:1 scale, but rather about finding ways to achieve given successes using your own means within the company. In the case of benchmarking financial results, we are, of course, primarily talking about profits.
By implementing performance benchmarking in your company, you will determine where your company ranks among the competition. You will also evaluate its efficiency and effectiveness not only in the context of your own expectations, but also in comparison to other market players.
The main goal of benchmarking is to increase the effectiveness and efficiency of your company. Better budget planning, cost control, improved results and even rational use of resources require a broader perspective.
There are several types of budget benchmarking:
- Internal benchmarking. In this case, the company compares its financial results with previous periods in order to assess progress and improve performance.
- Competitive benchmarking. It involves comparing financial results with competing companies in the industry. This makes it easier to understand whether a company is performing better than its competitors and, if not, why.
- Industry benchmarking. It compares a company’s performance to overall industry standards, not individual companies. It can help identify areas where a company can improve its performance.
Advantages of budget benchmarking
Most importantly: Budget benchmarking helps companies understand whether their financial goals are realistic. By comparing their budget plans with competitors, companies can assess whether their goals are too ambitious or too simple. This allows you to adapt your plans to your actual possibilities.
Second, competitive benchmarking allows companies to identify their strengths and identify areas for improvement. If a company performs better than its competitors, it can use this as a marketing tool. On the other hand, if he performs worse, he can work on improving his efficiency.
Third, budget benchmarking helps identify industry best practices. By reviewing the results of other companies, you can learn what works best and what strategies you can implement to improve your financial results.
How to benchmark competition budgets in your company?
Most often, benchmarking consists of five stages, which include:
Determining the data we want to compare (e.g. revenue growth, monthly budget, etc.)
Identifying a company that will serve as a template.
Collecting information regarding the aspects of the company’s operation that interest us.
Comparing information about both companies and drawing conclusions (what is it like and what do we want it to be?).
Defining goals and action plan. Don’t forget to also choose a way to measure the effectiveness of future activities.
Summary
Budget benchmarking is a valuable tool that helps companies evaluate their financial performance in the context of competition or industry standards. It allows you to adjust budget plans, identify strengths and areas for improvement, and identify industry best practices. Thanks to this, your company can also improve its financial management and achieve better results.