What Is Benchmarking? How To Set Benchmarks

One way to judge your performance is to compare your business to other organizations. Comparisons with competitors or companies that perform tasks well can help you optimize your work.

This process is known as “benchmarking.” A term originating in land surveying, benchmarking is about measuring metrics and practices and then comparing them with data from other businesses. It’s a strategic tool that saves money, increases efficiency, and highlights ways to gain a competitive edge. 

Here, learn about the different types of benchmarking, how to set up benchmarks for your business, and how to use the built-in benchmarking features of Shopify Reports. 

What is benchmarking?

Benchmarking is when a business uses data to compare its activities to other companies.

Most often, a business will create benchmarks to measure its performance against competitors or other companies engaged in similar activities. However, benchmarking can be performed against any organization with practices that you want to emulate.

You can establish benchmarks for different parts of your business, including teams, products and services, or overall metrics like sales volume and revenue.

Benchmarking produces standards and identifies opportunities for change. As a result of benchmarking, a business might adopt new working practices, engage in restructuring, or alter its sales strategy to improve performance.

Why start benchmarking?

The main reason to create benchmarks for your business is to find areas where your performance falls below the standards other organizations set. Identifying these areas for improvement will help focus your time and resources.

Depending on the data you gather from companies you choose to benchmark against, the process may reveal strategies for closing performance gaps. If you’re benchmarking against direct competitors where data gathering is limited, a strategic planning step is likely required to determine how to respond to benchmarking results.

Benchmarking can help you tweak your product’s features to stay competitive, introduce a new service to capture market share, or switch to a different customer relationship management (CRM) system that’s working well for other businesses.

On the other hand, benchmarking can be used to find places where your business is outperforming the competition. Used in this way, benchmarks can validate your unique value proposition.

For example, benchmarking helps Shopify deliver the world's best-converting online checkout by confirming it outperforms competitors by up to 36%.

5 benefits of the benchmarking process

1. Set data-based goals for departments and individuals
2. Discover and improve inefficient processes
3. Discover and reduce costly overheads
4. Identify small changes to your business that result in big improvements
5. Find and quantify industry-leading aspects of your business 

5 types of benchmarking

Benchmarking projects can be categorized depending on their aims and the data you gather. Here are five popular forms of benchmarking:

1. Technical benchmarking

Design teams use technical benchmarking to assess product capabilities and make continual improvements. Let’s say you’re a smartphone manufacturer. Your engineers might compare the battery specifications of your device with those of competitors to create a phone with an industry-leading battery life.

2. Performance benchmarking

Performance benchmarking tells you the health status of your business. It looks at key performance indicators (KPIs), such as email sign-ups or ecommerce conversion rates, to compare current activities to historical business performance and industry standards.

You can also use performance benchmarking to audit your internal reporting. By comparing how KPIs are used across your teams, you may discover which measures of success are most aligned with broader business goals.

3. Competitive benchmarking

Competitive benchmarking compares your business with direct competitors. For instance, if you run a coffee shop, you might compare your sales, menu pricing, or customer satisfaction ratings with another popular coffee shop in your area. The goal is to understand if and why a business is outcompeting you in a specific area—or if you are outperforming competitors.

Difficulties of competitive benchmarking include sourcing sensitive data from direct competitors. In these cases, it may be challenging to understand precisely what competitors are doing to achieve their performance.

4. Strategic benchmarking

Strategic benchmarking is another type of external benchmarking, this time involving non-competitor businesses. In strategic benchmarking, a business seeks to emulate the performance and practices observed in other companies.

For example, you could measure the high-performing marketing campaigns of a clothing brand to gain insights for your SaaS company. Or adopt helpful technology used in other industries, such as when retailers began using Universal Product Codes after noticing their success in the grocery industry.

5. Internal benchmarking

Internal benchmarking is a form of self-evaluation within your business. It involves comparing a team, specific process, or metric from one area of your company to an equivalent team, process, or metric in another area.

Imagine you run a chain of boutique hotels. The front desk of your Miami location receives consistently high customer service scores. In contrast, guests at your New York location don’t rate the front desk team as favorably. Internal benchmarking of metrics such as customer query response times or complaint resolution methods may reveal the cause of the disparity.

At the same time, care should be taken during internal process benchmarking to acknowledge potential variables between comparable processes and teams.

How to benchmark

To benchmark a part of your business, you need quantitative data that accurately represents performance in that area.

You’ll also need access to comparable data from a competitor, another successful business, or your industry to act as your benchmark.

Once you have both data sets, you can analyze how your business meets performance standards. Then, you’ll need to develop a strategy for acting on benchmarking results. 

5 steps to create a benchmark

1. Determine what to benchmark
2. Gather internal data
3. Gather benchmark data
4. Monitor results and identify gaps
5. Make and monitor changes

1. Determine what to benchmark

Benchmarking works best when focused on a specific element of a role, process, or product. For example, a less effective benchmark for a restaurant owner would be average service speed. In contrast, a more valuable and actionable benchmark would be the speed of service at full capacity on weekends.

Define the scope of your benchmark, including the type of measurement that best defines the product, service, or process. As a business owner, you likely have suspicions about areas of your organization that are failing or exceeding expectations—think of benchmarking as a way to validate those suspicions with quantifiable evidence.

2. Gather internal data

Next, it’s time to collect data from within your organization. This involves breaking down internal processes to calculate performance metrics.

For the restaurant owner, this could mean tracking the time between accepting an order and delivering meals to the table over several weekends. You’ll need to select the tools and technologies that will be used for this process, which could range from simple customer surveys to ecommerce analytics platforms.

3. Gather benchmark data

Thirdly, you’ll need to look at the same metrics in comparable businesses to generate your benchmark. Depending on the type of benchmarking, data gathering can take different forms:

• For performance benchmarking, you might want to draw on industry reports or annually published figures, such as return on assets (ROA).
• If you’re creating a strategic benchmark against a non-competing business, you could reach out directly for the information you need.
• In the case of competitor benchmarking, gathering valuable information may be more difficult and require primary market research. For example, the restaurant owner might visit other local eateries as a customer during peak hours to observe their service speeds.

4. Monitor results and identify gaps

After you’ve set goals and collected data, run your benchmarking test and analyze the results. This involves comparing internal metrics against benchmarks—manually, or using data analytics software—to identify performance gaps.

5. Make and monitor changes

Benchmarking will point out areas for improvement, but most of the time, it won’t tell you how to address those gaps in performance. The final step in the process is therefore to develop and implement a strategy in response to your results.

If the restaurant owner finds that slow service is a problem, they might need to work with kitchen staff to revise processes or provide additional training. Likewise, share benchmarking results with your team as a first step in adapting the way you work.

Don’t forget to monitor the results of any changes you make.

How to benchmark on Shopify

Shopify users can compare their store’s performance against similar stores in a few clicks.

If you’ve sold at least one product in the past 30 days and there are enough similar stores to provide a meaningful comparison, Shopify will create benchmarks based on factors like order volume and the categories of products sold.

To view a benchmark, open a compatible report, select the Compare menu, then click Benchmarks.

Benchmarking is available within several Shopify Reports, including online store conversion rate, average order value, and fulfillment reports:

💡 Note: Benchmark comparisons are only visible in data charts, not in data tables. Some benchmarks are unavailable on a basic plan.

Learn from the best

Benchmarking is a powerful way to assess the strengths and weaknesses of your business and understand what makes your competition so tough.

By comparing your business to others, you can set realistic goals and find new and efficient methods for achieving them. Remember, the aim of benchmarking is not necessarily to copy what others are doing, but to understand where and how you can improve.