Spendgo | Customer Engagement Blog

A Simple Guide to Benchmarking for Retail Businesses

Written by Ivan Matkovic | November 18, 2019

Any business owner will tell you that setting goals is critical for success. But before you start setting goals and tracking KPIs, you need to have a baseline. That’s where benchmarking comes in.

What is retail benchmarking?

Retail benchmarking is the practice of comparing retail business metrics to identify and add context to key performance indicators (KPIs). 

A benchmark may be based on historical performance, third-party research, an analysis of competitor performance, or something else. While KPIs measure performance in a vacuum, benchmarks provide context that can help retailers set goals and track progress. 

In this post, we’ll go over the purpose of benchmarking, quantitative and qualitative benchmarking approaches, the two main types of benchmarking (internal and competitive), and five steps for conducting benchmarking.

Why conduct benchmarking?

Benchmarks are used to analyze the effectiveness of operations across all business areas (e.g.  productivity, marketing, sales, customer service, customer loyalty, and more). By determining standards in these areas, you can keep tabs on your business performance and make adjustments accordingly.

Let’s say that through benchmarking, you determine that your business has an average loyalty program adoption rate of 65% across three different locations. A year after establishing your benchmark, one location’s adoption rate has dropped to 40%, while the other two have remained around 65%. 

Without context, the 40% number doesn’t mean much. But because you have an established benchmark, you know that one of your locations is falling behind, and you can look to the other two locations to identify processes and practices that have helped keep their loyalty program adoption rates at the benchmark level.

What are the types of retail benchmarking?

There are a few different categories of benchmarking to consider, as well as different benchmarking analysis strategies. Keep in mind that while using one approach can give you some valuable data, you’ll get a more complete picture by using multiple approaches. 

First, there are quantitative and qualitative methods for establishing benchmarks. Using a quantitative approach involves looking at hard data like sales numbers. A qualitative approach examines more observational data like manager reviews of employee performance.

Sometimes a benchmark will involve both quantitative and qualitative data. For example, if you’re measuring customer advocacy, you might analyze the number of referral codes used (quantitative) as well as in-store conversations in which customers said they were referred by a friend (qualitative).

Both quantitative and qualitative benchmarking can be further categorized as internal or competitive.

Internal benchmarking involves making comparisons within your own business. This could mean looking at historical performance (i.e. year-over-year sales) or comparing performance between different departments or locations. 

Internal benchmarking is probably the most well-known type of retail benchmarking, and it’s especially crucial for small businesses. Luckily, it’s also the most cost-efficient, because it doesn’t require external resources.

Competitive benchmarking involves comparing metrics between your business and your competitors. By evaluating your business’s strengths and weaknesses in comparison to competitors, you can develop strategies to outperform the competition.

Competitive research can sometimes be hard to come by, especially for private retailers who aren’t required to disclose performance information. Resources for finding this information include online forums, professional organizations, and third-party vendors. 

How to establish retail benchmarks

The benchmarking process will look a little different for every business, depending on your size, industry, business drivers, resources, and market trends. However, there are a few basic steps every business should follow:

  1. Decide what to benchmark based on your key business drivers
  2. Select the metrics you’ll use to measure your benchmark. For example, if you’re trying to establish a baseline for an annual holiday sale, will you measure customer traffic, sales transactions, net profit, sales per employee, or something else?
  3. Choose your comparison points. This is where you’ll select internal or competitive benchmarking, as well as the specific internal areas or external businesses you want to examine.
  4. Collect data using methods that are most appropriate for your benchmark. Examples of data collection resources include POS systems, customer satisfaction surveys, manager reporting, and loyalty program platforms.
  5. Analyze the data to establish your benchmark, and use your benchmarking analysis to implement changes as necessary.

Benchmarking allows retailers to set standards and track performance against those standards over time. With the right combination of approaches, you’ll get valuable benchmarking data and gain a better understanding of your business’s position in your industry.


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