Benchmarking Definition

Benchmarking is a process that measures how a business is performing compared to their competitors. This measurement can be used to evaluate the business as a whole or only a certain aspect of the business (such as operational costs or procedures).

Benchmarking can also be used to measure how the business is performing relative to industry standards; the generally accepted requirements and operating criteria within their industry.

Benchmarking Example

A company interested in benchmarking their marketing processes typically begins by establishing which standards they want to measure, e.g., marketing costs, gross revenue, return on investment (ROI), or other elements. These items are then compared against those of their competitors.

For example, suppose that a business has decided to advertise their product or service with a pay per click (PPC) advertising platform like Google AdWords. The business begins by examining data on the average cost per click (CPC) paid out by other companies within their industry. This can give the business a benchmark of how much to pay for each click on their advertisement. Other metrics that might be of interest are the average conversion rates and average cost per action (CPA).

Why Is Benchmarking Important in Strategic Marketing?

Strategy

Benchmarking allows business owners to better understand the strengths and weaknesses of their company and lays out a clear growth strategy.

Continuous Improvement

It’s not uncommon for benchmarking to uncover valuable information about competitors. By taking a closer look at other businesses, a company might find new and better ways of doing things.