Why is Competitive Benchmarking Important?

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Q&A Pro › Category: Market Intelligence › Why is Competitive Benchmarking Important?
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Oliver Kempker asked 4 years ago
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Dani Avitz Staff answered 4 years ago
Experienced business managers know that success is more than just making sure your own organization is performing well. It also involves ensuring you stand out amongst your competition. 

But how do successful companies determine how well they’re performing relative to others?

Competitive benchmarking is the practice of assessing how your company compares to other businesses in your market. It usually involves choosing a distinct set of assessment metrics and seeing how your organization stacks up to competing ones.

How Do You Choose What Businesses to Compare Yourself With?

The obvious choice is your immediate competitors, or those who are most relevant based on size and business objectives. Doing so allows you to take advantage of immediate findings and quickly adapt to changes on your side of the market.

Alternatively, you can look through what some of the most prominent organizations are doing. While the results of your comparison will be unfavorable at first, getting an idea of how the most successful achieve their results can provide you with valuable insights into their strategies.

Decide beforehand on the goals of your competitive benchmarking effort. These decisions will guide who you compare yourself to and ensure that you aren’t changing focus too often.

How Businesses Implement Competitive Benchmarking

Competitive benchmarking isn’t a static, one-size-fits-all process. The three main ways businesses use this strategy are as follows:
  • Process benchmarking, or analyzing and finding ways to improve your existing processes. Examine how your competitors handle their operations to find potential areas of improvement.
  • Strategic benchmarking. Evaluate the strengths and weaknesses of your business’s strategy. The purpose of this form of competitive benchmarking is to identify what makes your company successful.
  • Performance benchmarking. This variant heavily revolves around outcomes. This area of benchmarking focuses on key performance indicators (KPIs). A performance-based benchmark will look at hard numbers and metrics between you and your competitors.
You can also look at certain aspects of your company and compare them to other players in the market. These include:
  • Customer service
  • Sales figures
  • Objective product specifications (such as cost per watt for a lightbulb manufacturer)
  • Brand recognition
  • User experience
Competitive benchmarking is a flexible process for identifying areas of improvement, where you are succeeding the most, what areas need improvement, and other useful information.

How Businesses Measure the Results

When it comes to competitive benchmarking, there are several KPIs you can test. Some of the most popular ones to include are:
  • Web traffic
  • SEO performance
  • Brand awareness
  • Customer satisfaction
  • Social reach
  • Conversion rates
This KPI-driven approach to benchmarking helps you better understand how your business is performing in each of these areas relative to your competitors.

The Benefits You Receive From Competitive Benchmarking

The conclusions you draw from these comparisons can provide you with valuable insights into how you should shape critical business decisions in the future. This way, your business learns from the mistakes of others and finds interesting new methods of increasing your own performance.

For example, if a competitor’s social media presence appears to be slipping, you can take advantage of the lost audience yourself and gain a competitive advantage through benchmarking.