How to Create a Benchmark for Your Small Business ROI

How to Create a Benchmark for Your Small Business ROIIn small business, you need to measure your return on investment (ROI).

If you don’t know where your time and resources are going and how they are generating business, you have no way to determine how effective your efforts are.

Creating a benchmark allows you to measure where you are against where you were, as well as where others are. It makes it easy for you to monitor the fluctuations your business goes through from one month to the next.

Fluctuation is normal and nothing to be afraid of. But if you’re consistently trending downward for too long, you know it’s time to make some adjustments.

In any case, here are steps you can take to create a benchmark.

Marketing Benchmarks

When people in business refer to ROI, they’re usually talking about marketing. It is essential to track marketing spend against revenue generated to assess the effectiveness of various marketing efforts. There are many marketing channels, including offline methods like TV advertising and newspapers, to online techniques like SEO and email. Inevitably, some are more effective than others.

Marketing benchmarks can take different forms. Firstly, you can create a marketing benchmark for your own business. By tracking and analyzing your marketing methods and the effectiveness of each over the long term, you can create a benchmark report for your own business. Determining your marketing ROI is something we’ve talked about before, but this would undoubtedly be an essential part of the process.

Secondly, benchmarks also exist in the broader business world. You can study reports, such as those created by Nielsen to see where ad dollars went and what the ROI was for many companies – not just one.

Fundamentally, benchmarking is a way for you to ascertain where the best marketing performance is being achieved. You can use this information to refine your marketing practices further.

Small Business Benchmarks

We’ve looked at how benchmarking applies to marketing. Now we’re going to take a more zoomed-out view of how small business benchmarking works and what areas to look at. The goal, again, is to compare your business against others and, in turn, identify areas you can improve.

Your first step should be to look at what your business drivers are. It will vary from business to business, but it could be excellent customer support, products sold, production speed, and so on.

The next step is to look at what businesses you can compare yours against. It doesn’t make sense to choose an organization that’s too dissimilar or is a different size. But it can be worthwhile to look at companies you aspire to be like.

Once you’ve chosen companies to compare yours to, you can begin your analysis. You could look at areas like efficiency, how you’re using your resources, what your costs and expenses are compared to other similar businesses, how many sales each of your employees is generating, customer service, and so on.

Profit margin is another vital consideration. It will tell you how efficiently you’re generating profits compared to other companies. You may come to see that you can cut costs and streamline to increase your margin.

One final step is to look at reports and industry norms. There are plenty of studies available, which makes it easy for you to see where your business stands in the grand scheme of things.

Final Thoughts

That’s a broad overview of how to determine how effective your business is. You can go deeper into each area and drill into the numbers to gain a more holistic view of how successful you are.

It won’t matter, however, if you don’t focus on the end goal of identifying competitive advantages. Your analysis should be translated into a clearly defined action plan once you know what your next steps should be.

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