Benchmarking enables your firm to compare itself to others in its industry by measuring your financials and business operations metrics against your peer group. The resulting information can help validate your efforts to raise your visibility, increase revenues, and control expenses.
The professional services industry presents its own benchmarking challenges because it is composed of an eclectic mix of firms, such as architects, engineers, law firms, medical and allied health professionals, and consultants. Therefore, each firm will have unique criteria to measure.
How it works
Conducting a benchmarking exercise involves the owners and the financial executive of your firm, possibly in conjunction with a key advisor or group of advisors. Together, they determine the standards of excellence or statistical parameters that are most critical to track. This benchmarking data, typically referred to as Key Performance Indicators (KPIs), can be compared to peers or to a self-selected standard, with an overall goal of continually improving the effectiveness of your firm’s operations.
Evaluating the KPIs on a regular basis is essential to successful benchmarking. Also critical is selecting a valid and sufficiently in-depth database with information from an appropriate peer group that connects directly to your chosen metrics for comparison.
Where to find data
Is the Internet is a good place to look for industry metrics? Maybe. While so much data is available via the Internet, it may not reflect the current business climate of a geographic region or be as detailed as you’d like. It also may be difficult to assess the depth and source of off-the-shelf survey data.
We encourage our clients to look for survey or statistical data provided by professional organizations, ones that are endorsed or produced by the professional society representing the industry. Examples of such organizations: American Institute of Architects or American Council of Engineering Companies (architects and engineers), Medical Group Management Association (physicians), and American Bar Association or state and local bar associations (attorneys).
Certain industry publications, such as Medical Economics in the case of physician practices, also may provide information to use for measurement metrics. Additionally, consultants and service provider organizations, such as law firms that specialize in medical practice advisory services or accounting firms that produce surveys, may produce regional survey information better suited to your firm.
What’s next
Your professional advisors may be able to help with your benchmarking exercises. Ask whether your advisor subscribes to any analytical tools that contain a database of information (preferably sorted by NAIC codes) that are used to produce benchmarking reports.
Make the benchmarking a recurring routine and a reason to evaluate your business more than once a year. This will help you stay ahead of the curve by making informed decisions or adjustments to your operations when necessary.
Timothy C. Hilbert can be reached at Email or 215.441.4600.