Benchmarking Your Business Performance
by Dr Greg Chapman, MBAHow do you know how your business compares with others? You can ask your competitors, and they always say business is great. Why wouldn’t they, after all, when they ask you, you tell them the same thing!
Well there is a way to see how you are going against others. The Australian Tax Office have released performance benchmarks for 50 types of businesses. Their purpose, as you might expect is not totally altruistic. Their objective is to identify businesses outside the performance norms so they can target them for tax audits. However, you can use these benchmarks to see how you are doing against others.
For different types of business and turnover ranges, the ratios of cost of goods sold, labour and rent to turnover are presented. As a word of caution- the ATO excludes from the labour ratio the wages of owners. However, you can get an idea of the gross margins on which others are operating for different sizes of business.
To use these benchmarks, select your industry, the turnover range that applies to you and pick an average value of the ratios. For example, if you have a plumbing business turning over $200,000 per year, materials costs average 38% and labour costs (excluding the owners’ wages) are 15%. The ATO note that most plumbers do not report rent as presumably they run their businesses from home. Therefore, the gross margin before general overheads and owners’ wages is 47%.
There is, of course a range of gross margins for plumbing businesses of this size of 36%-58%. Well run businesses with good marketing will be at the top end of this range.
Where does your business fall within this range? This will give you an idea how well you are doing and provides a performance benchmark for your business.
If your business is at the bottom end of the range, you need to understand why. “The Five Pillars of Guaranteed Business Success” is a great resource to understand where the performance gaps are in your business.
Now you know where you stand, what are you going to do about it?
Well there is a way to see how you are going against others. The Australian Tax Office have released performance benchmarks for 50 types of businesses. Their purpose, as you might expect is not totally altruistic. Their objective is to identify businesses outside the performance norms so they can target them for tax audits. However, you can use these benchmarks to see how you are doing against others.
For different types of business and turnover ranges, the ratios of cost of goods sold, labour and rent to turnover are presented. As a word of caution- the ATO excludes from the labour ratio the wages of owners. However, you can get an idea of the gross margins on which others are operating for different sizes of business.
To use these benchmarks, select your industry, the turnover range that applies to you and pick an average value of the ratios. For example, if you have a plumbing business turning over $200,000 per year, materials costs average 38% and labour costs (excluding the owners’ wages) are 15%. The ATO note that most plumbers do not report rent as presumably they run their businesses from home. Therefore, the gross margin before general overheads and owners’ wages is 47%.
There is, of course a range of gross margins for plumbing businesses of this size of 36%-58%. Well run businesses with good marketing will be at the top end of this range.
Where does your business fall within this range? This will give you an idea how well you are doing and provides a performance benchmark for your business.
If your business is at the bottom end of the range, you need to understand why. “The Five Pillars of Guaranteed Business Success” is a great resource to understand where the performance gaps are in your business.
Now you know where you stand, what are you going to do about it?
May Your Business Be - As You Plan It.
Over to You. What do You Think? Post Your Comments Below.
Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.
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The Australian Small Business Blog
Labels: Business Performance Benchmarks, small business advice
posted by Dr Greg Chapman @ 6:09 PM
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