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What is benchmarking?
Oberlo defines benchmarking as a “process where you measure your company’s success against other similar companies to discover if there is a gap in performance” [1]. The purpose of benchmarking is to help define industry standards, i.e., the ‘benchmark’, encouraging best practice, guiding performance targets, and informing strategy. Organisations can exist in their bubble, and whilst they measure their performance, they have no sense of whether this is good or bad compared to competitors. For example, a growth rate of 10% might sound very successful, but if the market competitors are growing at 20%, this is a different story.
Adroit conducts several different benchmarking studies on behalf of clients, particularly in the fundraising sector. We build insights and collective performance at the country level, delivering interactive reports in Microsoft Power BI and insight webinars.
The application benchmarks different organisations within a market (external benchmarking) and different markets within an organisation (internal benchmarking). Across different projects, we use self-reported aggregated data, row-level transactional records, and drawing on external sources.
Find more details on our Charity Benchmarking project on our dedicated page
Although benchmarking is crucial to inform strategy and drive performance, it is not a simple process and presents challenges. Working with large datasets from multiple organisations with different definitions, it is easy to become overwhelmed with data. This blog outlines three tips to get you started with successful benchmarking.
1. Develop consistent metric definitions
Firstly, what do we want to measure? Key Performance Indicators (KPIs) which are appropriate to benchmark must be defined. KPIs should include the relevant categories and fields, e.g. payment methods, channels etc. and cope with different organisational ways of aggregating the data. Next is defining how the KPIs are measured. This is particularly relevant when conducting external benchmarking because each competitor may have slightly different ways of calculating each metric to make it suitable for their organisation. Therefore, defining, agreeing, and documenting technical definitions and metric calculations with relevant stakeholders is essential to successful benchmarking. The outcome of this is a clear and easily accessible data dictionary or glossary. The final stage of developing consistent metric definitions is establishing a data auditing process. This comprehensive review of data submissions ensures that what organisations provide aligns with the agreed definitions and specifications.
2. Compare ‘apples with apples’
The saying of “apples and pears” holds true, particularly for benchmarking. In other words, this means comparing like-for-like and ensuring the measurement is consistent for each organisation. The phrase not only reminds you to eat at least five portions of fruit and veg each day(!), but also to provide benchmarking analysis that is not misleading. For example, imagine you are comparing five organisations, but each has a different number of markets due to missing data. The outcome would skew results towards the organisations with a higher number of markets. Therefore, for a genuinely fair benchmark, you should filter only on markets that are common across all five organisations. This is the ideal world. However, it may not always be possible to compare like-for-like exactly. We can only work with the available data, and there may be limits to the filtering that can be applied. Also, it may not always be the case that all markets can exist within each organisation. In this scenario, and as general best practice, ensure what is represented in the analysis is clearly outlined.
3. Context is critical: the story behind the numbers
When benchmarking, you may find that the organisations you are comparing to are quite different, even when comparing like-for-like. For example, some organisations may naturally be much larger or smaller than others. This can sometimes skew results. For example, if looking at % growth, smaller organisations may grow at a much higher rate than larger organisations.
Therefore, it is essential to provide straightforward data counts for each metric to help contextualise the size and relevance for each organisation.
Furthermore, as benchmarking aims to set a standard of best practice, it may be necessary to exclude outliers that distort overall trends. Finally, when working with data from multiple organisations, it is only possible to present what is available. Without working for an organisation directly, it can be challenging to explain why specific trends are happening. Therefore, it is essential to not only present the findings but also create a space allowing organisations to network and collectively discuss performance and everyday challenges. A good benchmark provokes discussion, which could be in the form of an interactive webinar.
Conclusion
Benchmarking is the process of comparing organisations in the same industry, for example, benchmarking charities in the fundraising sector. Conducting benchmarking analysis is not a simple task, often working with large datasets from multiple sources and organisations. However, here are three tips to help you get started. First, clearly define, document, and audit metric definitions. Compare like-for-like as much as possible to ensure results are not misleading. Third, contextualise findings with data counts, evaluate the impact of outliers, and create a space for organisations to discuss findings.
