CETA Edge: The Value of Benchmarking

CETA Edge: The Value of Benchmarking

By Diane M. Calabrese

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For golfers and marathoners, the true test of strengths and weaknesses is a direct competition. Benchmarking offers the same sort of test for participating distributors and manufacturers.

By participating in the CETA benchmarking program, a distributor or manufacturer can evaluate its cumulative, year-over-year performance in the context of its competitors. A third-party administrator, the Profit Planning Group in Boulder, CO, receives, aggregates, and analyzes data submitted by participants. (And it does so while it holds the information submitted in complete confidence, releasing metrics in a way that ensures individual firms cannot be identified.)

The benefits derived from participating in the CETA benchmarking program are many, and we have reviewed some of them before. Yet to appreciate the full value of benchmarking, take a closer look.

Benchmarking Participants will:

  1. Learn what can be done better.  “It allows me to compare my company to other companies…what do they do well that I could do better, and what do I do well?” explains Jim O’Connell, president, Hotsy Pacific, Modesto, CA. “It gives me a road map for success— what should my gross margin be, where should my productivity numbers be, or what is a good profit margin?”

  2. Realize what’s doable. “I like knowing what an average company’s numbers are and also what a great company’s numbers are so I have a gauge of where we are and what can be attained,” says O’Connell.

3. Assess success with a critical eye. “How do you know you are successful?” says O’Connell, reminding that great sales numbers are not a direct or true indicator of profitability. “I know of quite a few companies who have great sales but very little profit. Why would you not want to know where you compare to other companies? There are a few key metrics that determine your company’s value. Wouldn’t that be helpful to know?”

  4. Remove the guesswork. “Rather than just guessing at what needs improvement, you see how you compare to similar businesses in the same industry in many different areas,” says Chris Meyer, controller at Ben’s Cleaner Sales, Inc. in Seattle, WA. The information points to places to start when making changes or improvements.

  5. Find submission requirements simple. “Participating in the CETA benchmarking is easier than it may seem,” explains Meyer. “You can even skip filling out the survey, just send in a financial statement, and they will do it for you. If you want more detailed results, then fill out the survey questions.”

  6. Be confident data are protected. “All companies that provide benchmarking are bound by law not to disclose any financial data to any other company,” says O’Connell. “They have signed a contract to the engaging party to that effect.” Initial concerns with privacy and information security are natural, says Meyer. But they should be put aside. “We have confidence in the company that analyzes the financial information, and the benefits of the information we get back are invaluable.”

  7. Gain courage. Be prepared for a “shock” when comparing, says O’Connell. There may be “wide gaps in key numbers.” But that’s a good thing, he explains. “It should give you courage to make the changes that will grow your numbers in the right direction” by seizing on “the best practices as to how the best numbers were achieved.”

  8. Develop questions for colleagues. Knowing where one wants to improve helps with the formulation of questions. “It helps us know what kinds of questions to ask our peers at events like the CETA Annual Convention,” says Chad Rasmussen, general manager at Royce Industries, L.C. in West Jordan, UT. “My experience with CETA has been of great worth to me— both personally and professionally,” says Rasmussen. “I have learned that as you develop relationships and are willing to share information, others are willing to do the same.”

  9. Help sort out the fine points. “The reports provided show things like sales per employee, sales per vehicle, and payroll expenses,” says Rasmussen. “When comparing yourself to others, if you were to see something like lower sales per employee and higher payroll expenses, you could ask yourself and others why that is and what you can do to make it better.”

10. Answer questions. “Benchmarking answers some of my top business questions that I am otherwise guessing at,” says Kim Micha, principal at High PSI Ltd. in Glendale Heights, IL. “Are we making as much money as we could be? Do we have too many or too few employees for the revenue we are bringing in? Am I paying too much for expenses, including business insurance? Are we maximizing profit?”

11. Weigh external factors. Not knowing how competitors are doing may lead a business to conclude that it is the prevailing economic climate and not the way the business is operating that is reducing profits or in- creasing expenses, explains Micha. With benchmarking, it’s possible to see trends for other companies and to correctly weigh the economy versus in-house factors.

12. Know how to spend time. Micha describes past attempts to reduce the expense of business insurance as “a long and painful process” and a process that benchmarking made her understand was time misspent. “When I took a look at the benchmarking numbers for this category, I realized we are actually paying a lower percentage of our revenue as business insurance compared with other dealers,” she explains. The result? “Now, I can focus my time on other business matters rather than focusing on an area that is already as good as it is going to get in the foreseeable future,” says Micha.

13. Decide how to spend money. “We were thinking of hiring an additional full-time service technician due to being strapped during the busy times of year,” says Micha. After looking at sales per employee, which were above average, she determined that hiring was not the way to go. “If I were to add another technician without producing additional business, our sales per employee would be below average.”

14. Add strength to the industry. “At the end of the day as a business owner, we want to create value for today—salaries for ourselves, and value for tomorrow—maximize future cash flow to obtain top dollar upon succession,” says Micha. Strong companies make a strong industry and, in turn, that industry contributes to a strong economy. (Nothing fuels the advances among golfers and marathoners more than competing and striving for excellence.)

15. Get a big return on hours invested in completing survey. “I ignored the benchmarking communications for the first couple of years in my current position because I did not think I had time to dedicate to the process,” says Micha. “Then I realized that it is incredibly silly not to put one to three hours aside and just fill in the survey.

16. Take full advantage of CETA membership. “To participate, you either need to be a CETA member or be a distributor for a manufacturer that has sponsored the program,” says Rasmussen. “If you are in either of these categories, participation in benchmarking is free.”

17. Discover something to insert here. Ultimately, the value of benchmarking is as unique to each participating  distributor and manufacturer as it is useful to all in the whole. Be prepared to make one new entry on this list while reaching for and attaining excellence.