What Is Benchmarking in Business?
Benchmarking means comparing your performance against a standard. Here's why it matters and how to do it right.
Key Takeaways
- Benchmarking compares your metrics against an external or historical standard.
- Internal benchmarking compares you to your own past performance.
- External benchmarking compares you to industry averages or competitors.
What benchmarking means
Benchmarking is the practice of measuring your performance against a defined standard. That standard can be your own past performance ('we were at 38% gross margin last quarter'), an industry average ('UK eCommerce returns average 22%'), or a target you've set ('we aim for under 5% churn').
Internal vs external benchmarks
Internal benchmarks are the most accessible. You compare this month to last month, or this quarter to the same quarter last year. External benchmarks require industry data — sector reports, trade bodies, or tools like AskBiz that aggregate anonymised data across similar businesses.
Why benchmarking changes decisions
Without a benchmark, a 35% gross margin might feel fine. With a benchmark showing your sector averages 48%, it becomes a pressing problem. Context transforms data into urgency. Most founders underperform on margins they don't know are below par.
What to benchmark
Start with your top three to five KPIs. Gross margin, customer acquisition cost, churn rate, and average order value are common starting points for product businesses. Compare quarterly rather than monthly to smooth out seasonal noise.