Financial benchmarking: Putting your numbers into perspective

It’s impossible to truly understand your numbers if you’re only looking at them in isolation. A million dollars in sales, for example, could mean very different things depending on the context.

Perhaps that million was earned by offloading stock at a 50% discount—a result that falls short of the two million you’d originally projected. Or maybe it represents steady growth in challenging market conditions, putting you well ahead of competitors. It could be a solid outcome for a small regional business, or a red flag for a large-scale manufacturer. It could be a symptom of success, strain, or simply business as usual.

The point is that numbers are not inherently good, bad, or indifferent. It’s the context around them that makes them so. That context comes from many places. From your own information: your past performance, future projections, and the relationships between your key financial metrics. It also comes from sources beyond your four walls: market conditions and the political, legal, and economic factors at play.

Financial benchmarking is one of the tools we use to build that context, to go beyond ‘this is what the number is’ and arrive at ‘this is what the number means’.

To bring it down to a simple definition, financial benchmarking is the process of making meaningful comparisons to others, and through this, identify opportunities for improvement. The operative word here is ‘meaningful’. There’s nothing to be gained by comparing your financial profile to that of a business from a different sector, of a different size, with a different model—your numbers will be worlds’ apart, and rightly so.

The value of benchmarking starts with choosing references that foster meaningful comparison. Comparisons only carry weight when they are relevant to your world, which is why we’ll often look at your industry’s averages, top performers, and lookalike businesses.

Most often, we mine this data from reports by established industry researchers such as IBISWorld, as well as major publications from industry associations and financial institutions. These organisations bring three things smaller researchers often can’t: depth of expertise, stringent processes for data collection and analysis, and large sample sizes—all of which add up a strong foundation for meaningful comparison.

From here, we compare, contrast, and draw parallels between your numbers and those of your industry peers. While the specific financial metrics depend on the unique characteristics of your business, there are a handful of indicators that consistently tell the clearest story across industries:

Inventory turnover, which shows how quickly stock is moving.
Debtor days, which reveal how long you’re waiting to be paid.
Profit per full-time employee, a measure of how effectively staff are being utilised.
Cost breakdowns, which show where every sales dollar goes—to purchases, wages, rent, or other expenses.

With those metrics in hand, we’ll review your figures against benchmark data. It’s tempting to think of this as the moment where the rubber meets the road, but as we stress to our clients, this is not an undertaking that grants you a ‘pass’ or a ‘fail’. It’s not an exercise in fault-finding, or scrutinisation of the ways you’re not measuring up to your industry’s frontrunners.

It’s a tool to build context around your numbers, to make them more meaningful by understanding the world that surrounds them.

By nature, financial benchmarking highlights areas where your numbers differ from others in the same industry. That difference doesn’t automatically mean there’s a problem, but it does tell us this is an area worth a closer look. Think of it as a flag in the soil, a marker that shows us where to dig. Once we dig, we might find the difference is simply a unique part of how your business operates. Or we might uncover an area that is ripe for improvement. In any case, it helps us determine where we should focus our energy.

So far, we’ve addressed financial benchmarking only as a process of comparing your key financial metrics to others in the same industry. While this is typically what advisors are referring to when they mention financial benchmarking, it’s not the only type. Not just outward-looking, benchmarking can also be exercised internally.

Two sites, two divisions, or two projects doing the same kind of work rarely perform identically. By comparing them side by side, you can see what’s driving differences in financial performance, and whether there are lessons to carry across.

For example, if one location achieves a strong result with five staff but another needs seven to reach the same turnover, that’s a flag in the soil for investigation.

Are there efficiencies at one site that can be replicated elsewhere? Or are structural factors, such as local market conditions or supply arrangements, creating the difference? These are the kinds of questions internal benchmarking is designed to raise, helping you see where performance gaps exist and what can be learned from them.

When you look at financial benchmarking this way, whether you’re comparing your financial performance to external or internal benchmarks, its purpose remains the same: it’s all about creating context. And that context is critical—because there’s a world of difference between ‘this is what that number is’, and ‘this is what that number means’.

In the 20+ years I’ve been providing financial guidance to businesses, I can say, unequivocally, that success doesn’t come from knowing your numbers alone, but from understanding the story they’re telling you.

—

If you’d like the support of an external CFO to help interpret your numbers and uncover opportunities, learn more about our External CFO service.

Advisory

Business Services

Forensic Accounting & Audit

Superannuation

Administration Services