Measuring Up To Proper Benchmarking
In business we ask ourselves the same question every day:
“How are we performing?”
We spend many hours identifying the metrics and key performance indicators (KPIs) that best gauge how well our business are performing and monitoring those numbers. However, we will never be able to provide an answer to this question until we have a benchmark to judge our performance against.
How you determine your benchmarks depends on a number of factors including: industry, data availability, and individual business characteristics. There are 3 major types of data that may or may not be available that you can use to determine benchmarks;
- Internal data
- Industry data
- Competitor data
The tendency is to believe that benchmarks need to come from external data. While some useful statistics can be found externally, businesses vary in their strategies, circumstances, and measurement methods. Therefore, external data needs to be used with care.
The simplest and most robust form of benchmarking comes from internal data. A good benchmarking strategy should universally begin with an analysis of past performance, looking at important metrics in terms of month-over-month and year-over-year growth. It should also strive to bring to light an understanding of how these metrics respond to factors like increases/decreases in operating budgets (online and offline advertising expenditure), changes in marketing efforts (digital and traditional marketing channel mix), the effects of internal business changes (staffing changes, M&A activity, etc.). This data must then combine with external observations, such as broader economic and industry fluctuations, to complete the picture. This type of methodical, long-term internal tracking eventually allows you to build predictive analytic models of your KPIs, giving you more accurate forecasting abilities.
The external data based methods of benchmarking (industry and competitor) are most useful for layering on top of your internal data. In terms of examining how your performance compares to competitors and industry trends, this practice will help to answer questions like: “are we keeping up?”, or, “are others experiencing the same things we are?”. These data types should not be relied upon in and of themselves, unless the data provided is a standardized measure utilized by all members of an industry regulatory body and where all members agree to adhere to a standardized measurement protocol.
Don’t Sit On the Bench
Many companies (and agencies) perform reporting using the data described above; however, very few of them go the extra mile by conducting ‘action-oriented’ analysis. This means commentary that goes beyond “this KPI went up, this KPI went down”, but actually addressed the root causes of these shifts and, more importantly, the next steps that should follow based on them. When reading a digital marketing report, the answer to the question “so what?” should be imminently clear and well supported with evidence. Stating that “website traffic is down 23% month-over-month” is not analysis—it is merely observing a trend. Stating that “website traffic was down 23% month-over-month due to a decline in direct visits, which likely stems from decreased media investment“ is analysis. Once you understand the cause of any changes in performance, you will know how to adjust your strategy.
Benchmarking is a critical business practice that will help you understand how well your organization is performing. Vovia offers comprehensive analytics services, so if you need help getting started, please feel free to get in touch.