Benchmarking in Your Business

David Balwin
A good thing about having this budget and getting this process going is that you can then start to benchmark. Benchmarking month to month is of limited value because you can get too many fluctuations over a short period of time. But once you’ve got two or three years of history you can look at what this was for the year, year to year, and what I do, the most common thing I do is, I use sales as a hundred percent. So the revenue from sales equals one hundred percent. Every single one of these, I put that cost over the sales cost and work out what percentage of one hundred percent that is. So I want to know for example, well take a common one, salary and wages, on average, it’s going to vary from industry to industry, on average, that’s probably going to run somewhere around thirty percent. If your wages are running around fifty to sixty percent you know you’ve got a problem – I guarantee you’ve got a problem. If it’s running around ten percent, it might look good, but the question is – are you really utilising sufficiently to generate revenue. So you can be too low as well. But, what we want to do over a two to three year period, we can actually use this information to do benchmarking year to year. And what we’re trying to do is make sure expenses as a percentage of sales are either static or going in which direction? We’ve got one going that way and one going that way – as a percentage of revenue do you want expenses going down or up? You want them going down. That’s correct, the more they are going down the more profit you make. And it’s why I use percentage as opposed to dollars, is because dollars can be deceptive. If my telephone bill went from three thousand to ten thousand, and I was simply looking at dollars, what would I think? Bloody Telstra – I’ve got a problem with the telephone bill. But what would happen if my telephone bill went from three thousand to ten thousand but my sales went from one million to fifteen million. Would I be too worried? No – correct, so that’s why you’ve got to look at it as a percentage. That’s why I like percentages as opposed to dollar value. Because percentages will tell you, particularly over a two to three year period or a three to five year period, it will tell you a lot more facts about the business than straight dollar figures.

Audience
Will, David, will MYOB give you that which you’ve got there?

David
MYOB will give you that, yes. There is a budget which will do exactly that for you on a month to month – you can print it out in one spreadsheet over twelve months. What MYOB will do will let you take last twelve months figures and just bring them straight over and then you can play with them. And it will actually allow you to vary it by ten percent or vary it by percentages too – so you can play around with it. If you don’t know how, give me a yell during the week and I’ll give you a quick demo on how to do that.