Skip to content
What is Benchmarking?


Start selling online now with Shopify

Start your free trial

What is benchmarking?

Benchmarking is a systematic process where a business measures its success against competitors to discover how to improve performance. The goal is to identify gaps, learn from the best, and make necessary improvements to achieve superior performance.

In benchmarking, businesses compare metrics, processes, and practices to industry leaders, competitors, and other organizations⁠—gaining an understanding of where they excel and where they lag. The goal is to not just mimic successful growth strategies, but to adapt and innovate based on these insights, ultimately enhancing their own performance.

→ Click Here to Launch Your Online Business with Shopify

Types of benchmarking

Benchmarking can be approached in various ways, each with its unique focus and benefits. Here are some of the most common types:

Internal benchmarking

Internal benchmarking involves comparing business processes and performance data within an organization. It's often the first step in benchmarking as it helps identify the best practices within the company. This type of benchmarking is particularly useful for large organizations with several departments performing similar tasks. It allows for the sharing of best practices and promotes consistency across the organization.

External benchmarking

External benchmarking, on the other hand, involves comparing a company's performance with companies outside its industry. This can provide fresh insights and innovative strategies that may not be found within the industry. It broadens the perspective and can lead to the adoption of new methodologies and practices that can significantly improve performance.

Competitive benchmarking

Competitive benchmarking involves a company comparing its performance against its direct competitors. This type of benchmarking is crucial for understanding a company's position in the market. It helps to identify strengths to be leveraged and weaknesses to be improved upon, providing a clear direction for strategic planning.

Process benchmarking

Process benchmarking focuses on a business's specific processes. The aim is to compare these processes with those of industry leaders to identify areas for improvement. It's about understanding the 'how' behind the success of top-performing companies and adapting their methods to improve one's own processes.

Strategic benchmarking

Strategic benchmarking involves the examination of how successful companies operate on a broader scale. It's about understanding their overall business strategies and how they drive success. This type of benchmarking can provide valuable insights into long-term strategies that have proven successful in the industry.

Performance benchmarking

Performance Benchmarking involves a company's tracking of key performance indicators (KPIs) such as email sign-ups, conversion rates, or customer retention rates over time. This allows businesses to compare their current performance against their own historical data, providing a clear picture of their progress.

Technical benchmarking

Technical benchmarking is used when a company wants to compare its technical products, processes, or services against the best in the field. This type of benchmarking is common in industries where technology plays a crucial role. It helps companies stay up-to-date with the latest technological advancements and maintain a competitive edge in the market.

Benefits of benchmarking

In an increasingly competitive market, benchmarking can provide valuable insights that can drive strategic decisions and foster continuous improvement. 

Specifically, it can help:

  • Plan and set goals: By providing a clear picture of a business's current standing, benchmarking informs strategic planning and facilitates the setting of realistic, data-driven goals.
  • Improve procedural inefficiencies: Benchmarking can help identify procedural inefficiencies that might be hard to spot, providing a clear path for operational improvements.
  • Reduce operating costs: Benchmarking identifies areas where costs can be reduced without compromising on quality or performance, leading to significant savings and improved profitability.
  • Understand your competitive advantage: By benchmarking against competitors, businesses can understand and leverage their unique strengths, differentiating themselves in the market.
  • Encourage innovation: Exposure to new business ideas, processes, and practices through benchmarking can spark innovation, inspiring businesses to think creatively and develop unique solutions.

How the benchmarking process works

The benchmarking process can vary, depending on a company's specific goals and the nature of the operations being examined, but in general, benchmarking includes a few key steps:

1. Planning

The planning stage involves identifying what to benchmark and who to benchmark against. Companies need to decide what aspects of their operations they want to improve. This could be anything from a specific process, like order fulfillment, to a key performance indicator, like conversion rate. 

They also need to identify a suitable benchmark for comparison, such as a direct competitor, a business in a different industry, or industry standards, and define what success looks like in relation to this benchmark. This could be improving a KPI by a certain percentage, reducing costs, or increasing efficiency.

2. Collecting information

With a clear plan in place, the focus shifts to gathering information about the company's performance. Depending on what is being benchmarked, the specific data required will vary. The tools and technologies used for this process can range from basic data tracking software to advanced analytics platforms, depending on the company's needs and capabilities.

For example, an ecommerce company benchmarking its conversion rate would need to collect data on the number of visitors to its website, the number of purchases made, and comparable data, either from a competitor, another business, or their own historical data. 

3. Data analysis

After the data has been collected, the next stage is analysis. The goal is to identify trends, gaps, and opportunities for improvement by comparing the company's performance with the benchmark.

This comparison could reveal insights such as whether the company's performance is improving or declining, or how it stacks up against the competition. The analysis should be objective and thorough, as the insights gained in this stage will inform the actions taken in the next step.

4. Action

Following the analysis, companies take action based on the insights gained. The specific actions will depend on the findings of the analysis. This could involve making changes to processes, investing in new technology, or training staff.

For instance, if the analysis revealed that a competitor's conversion rate is higher and they offer free shipping, an ecommerce company might decide to implement a similar offer. The aim is to apply the insights from the benchmarking process in a way that improves the company's performance.

5. Monitoring results

Monitoring the results of an action is crucial to understanding whether the changes implemented have been effective. In the monitoring stage, companies will track the same metrics that were benchmarked and assess whether the actions taken have led to improvements. This is an ongoing process that helps maintain the gains from benchmarking and supports continuous improvement.

Want to Learn More?