Business benchmarking: A complete guide
Your guide on all types of business benchmarking
Competitor benchmarking
Do you know how your firm’s prices, services, client experience or brand compare to other firms’?
Where is your firm excelling, and where could it improve? How does it stand out from competitor firms, and where can you find a competitive advantage?
Fortunately, there is a way to take the guesswork out of answering these types of questions.
Benchmarking helps professional services firms understand how they perform in relation to competitors. By analysing benchmarks of a range of firms across different metrics, we can identify where to focus your business resources to have the greatest impact.
Read on to compare benchmarking types, and how the practice can assist professional services firms and ROI.
What is benchmarking?
Benchmarking is the process of comparing a business’ performance, processes or practices against industry standards or best practices.
Benchmarking can be internal, comparing different departments or service lines within the same organisation. Or it can be external, comparing the organisation to competitors or industry standards. The comparison requires collecting data to analyse and understand the practices that lead to superior performance. That data can be used to build informed strategies that will enhance an organisation’s overall effectiveness, productivity and efficiency.
Fun fact: the word comes from a term historically used in land surveying. There, a surveyor’s “benchmark” was used as a reference point for measuring altitudes. “To benchmark” became common language meaning to compare one thing against another.
Benefits of benchmarking for business
In a sector where expertise, efficiency and client satisfaction are paramount, benchmarking is a very useful tool. In professional services, the customers – or clients – are intelligent, informed and critical thinkers. They have high standards for their own businesses and therefore expect continuous improvement from advisory firms they work with. Understanding how your firm compares to other firms can help guide this improvement.
Additionally, professional services is an incredibly competitive market. Beaton research has shown how client expectations of firms have risen every year for the past two decades. Our data shows clients increasingly expect more for less – and they are willing to shop around among different firms to find it.
Firms that manage to stay ahead of the curve and win the most work need to know what their competitors are doing best. By understanding this, they can identify where they might be able to improve or innovate.
As Dr Richard Speed writes in his 2023 whitepaper on Benchmarking in Professional Services:
“Where deficits in performance and inefficiencies are identified, action can be taken to close the gaps. And where superiority is identified, action can be taken to maintain and increase the gaps.”
In the below section we compare benchmarking types.
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Types of benchmarking
Internal benchmarking
Internal benchmarking involves comparing processes, practices, and performance metrics within an organisation. This type of benchmarking often compares between different departments or different team units.
In a professional services firm, you could choose to split comparison groups by the types of work or services you offer or regions in which you work. For example, comparing a tax team against the family law team in a generalist law firm.
Internal benchmarking is best for larger organisations that have a risk of becoming siloed. Larger firms that would benefit from standardising processes across the organisation or learning from high-performing groups in the firm.
Pros The internal nature of this kind of benchmarking makes it easier to gather the data necessary to make comparisons.
Cons However, there is limited scope as it only provides insights from within your firm. This limits the potential for innovation and provides no context from a market perspective.
External benchmarking
External benchmarking is involves comparing processes, practices and performance with other external organisations. This may include comparisons with direct competitors or can involve companies in different industries to provide new or broader insights.
For professional services firms, external benchmarking is the best method to ensure your business is keeping up with the market – which is rapidly expanding, innovating and changing. By regularly checking your own firm’s progress against external benchmarks you can ensure you are continuously improving and innovating.
You may also discover through external benchmarking where your firm is lagging other firms. This provides the opportunity to correct your services, price or brand before it’s too late.
Pros The main benefit of external benchmarking over internal benchmarking is that it provides a broader perspective, can help define industry standards and highlight your firm’s strengths and weaknesses relative to competitors.
Cons The challenge is that external data can be difficult to obtain from other firms with accuracy and quality. Additionally, there are privacy and confidentiality challenges with obtaining data about competitor firms that should be handled by professional research organisations.
Competitor benchmarking
Competitive benchmarking is a type of external benchmarking involves comparing your business with direct competitors in the same industry. For professional services firms, this would mean comparing with firms that are servicing the same clients in the same industry. For example, comparing law firms with law firms of the same type and size, who could compete for the similar types of clients.
The purpose of this type of external benchmarking is to identify your firm’s strengths and weaknesses relative to competitors. It’s particularly useful of businesses in highly competitive industries in which clients and customers have a range of options to purchase from. By identifying areas where your firm can gain a competitive advantage, you may adapt successful strategies to prevail.
Pros This type of benchmarking has arguably the most direct impact on strategic growth or marketing. It provides evidence to direct where investment will provide maximum returns.
Cons Keep in mind, however, this kind of market research does not often provide detailed feedback from your current clients. For that reason, competitive benchmarking is often well paired with a client feedback platform like Beaton Debrief.
Financial benchmarking
Financial benchmarking involves comparing your firm’s financial metrics against other organisations or industry standards. Key data points might include gross or net profit margin, debt ratios, working capital, operating cash flow or return on equity.
Determining how these financial metrics stack up against competitor firms provides a useful picture of your firm’s financial health.
Pros Financial benchmarking can clearly identify areas for cost reduction and efficiency improvement that will lead to bottom-line gains.
Cons However, there are challenges associated with this kind of benchmarking – the biggest being difficulties in obtaining the data from other firms. Very little data is publicly available, and most firms will be unlikely to share their more crucial financial information. This makes it hard to determine industry standards, and even harder to identify how your firm is performing in context.
Customer benchmarking
Customer benchmarking involves comparing customer-related activities and practices against those of other organisations. For professional services firms, we consider clients our “customers”. This kind of benchmarking thus compares elements of the client experience in your firm compared to other firms. Some of these might include client loyalty, satisfaction, communication and responsiveness.
Customer benchmarking in professional services focuses on understanding and improving the client experience, with a goal to improve loyalty and retain valuable clients for long term.
Pros Customer benchmarking can help your firm identify what clients believe are your firm’s strengths. As Dr Richard Speed writes, “Customer benchmarking allows differences between competitors in the eyes of customers to be established. Where these differences align with customer preferences and behavioural intentions, they represent a competitive advantage.”
Cons competitors. If the data comes from numerous sources or is not from a large enough pool, inconsistencies arise.
Operational benchmarking
This type of benchmarking involves comparing operational processes and performance metrics against those of other organisations or industry standards. The goal is to identify area to enhance efficiency, streamline processes and reduce costs.
Operational benchmarking requires firms to take stock of current processes, which is a beneficial exercise. Regularly assessing these processes across different departments often helps shine light on areas that could become streamlined. For example, different groups of departments within your firm may find out where they could share resources. Then, comparing those processes externally with industry standards and other firms can help generate ideas and innovations for greater efficiency.
Pros Operational benchmarking can improve efficiency, productivity and cost savings and yield substantial long-term benefits when adapted to the firm’s strategy.
Cons However, this type of benchmarking is also resource-intensive. It is undoubtedly a big ask for busy firms to continue current client-facing projects while also undertaking the research necessary to benchmark operational performance.
People benchmarking
This kind of benchmarking involves comparing human resource (HR) and employee-related metrics with other firms or industry standards. It is sometimes called employee benchmarking because it focuses on understanding and improving employee satisfaction, productivity, turnover rates, engagement and talent management.
Pros People benchmarking gives firms the opportunity to enhance employee satisfaction and retention, which ultimately drives down costs. You may also find it easier to recruit amid the war for talent if your employee experience (EX) improves as a result of benchmarking.
Cons However, like the above forms of benchmarking, it can be difficult to collect reliable and comparable data to other organisations. Many aspects of the employee experience are well-guarded secrets for competitor firms.
Product benchmarking
This type of benchmarking involves comparing the features, performance and quality of a company’s product or services. In a professional services context, it would mean comparing your firm’s service offering to other similar firms in the same industry. The goal is to assess how your firm’s services stack up against competitors in terms of client satisfaction and brand positioning. By analysing the differences between your service offering and other firms, you may identify unique advantages or points of difference that you can leverage in marketing to clients.
Pros Product or service benchmarking is a great way to ensure you stay competitive in the market by keeping track of how your offering compares to other firms.
Cons As always, obtaining data can be difficult and identifying honest client preferences almost impossible without rigorous and extensive feedback surveys.
Strategic benchmarking
Strategic benchmarking involves comparing your firm’s high-level strategies, business models, and approaches with other successful firms, often across different industries. This type of benchmarking aims to identify successful strategies that you can adapt to enhance your own firm’s long-term planning and competitive positioning.
Pros The main advantage of strategic benchmarking is it can help firms learn from the strategic successes of others. This potentially leads to more effective long-term planning and innovation.
Cons As always, obtaining detailed information to compare you own strategies to is very difficult. There is also a potential that those external strategies will not align with your firm, due to different market conditions and organisational contexts.
Best-in-class benchmarking
The final type of benchmarking we will discuss is best-in-class benchmarking. Rather than comparing performance and client metrics with all other organisations, this type of benchmarking focuses on comparison with industry leaders. It challenges firms to identify and adopt best practices and strategies employed by top-performing firms, by setting benchmarks much higher than average.
Pros This kind of benchmarking is best for firms with ambitious growth and improvement targets, who want to match or beat the industry’s best. It allows firms to learn from the successes of others and identify opportunities for investment in their own operations.
Cons Once again, however, the difficulty of obtaining detailed and accurate information from industry leaders is a barrier. Best-in-class firms are among the least likely to share their trade secrets.
Customer satisfaction benchmarking
Beaton Benchmarks is a unique type of benchmarking that doesn’t fit easily into any one of the categories above. We are in the business of benchmarking customer satisfaction, or client satisfaction in professional services.
This type of benchmarking enables us to utilise the best features from a variety of methods listed above.
How we benchmark client satisfaction
Rather than ask for private data from firms directly, which risks bias and underreporting, we obtain our benchmarking data from arguably the most important judges of firm performance – clients.
Every year, we survey tens of thousands of clients across hundreds of professional services firms for the Client Choice Awards. We ask those clients to rate and rank firms on a range of metrics such as price, communication, brand, reliability, likelihood of considering the firm and ease of doing business with. We also encourage clients to add any anecdotal or verbatim feedback comments. This survey and the awards are entirely free to participate in.
The Beaton Benchmarks survey is the largest and most extensive of its kind in the world. We have conducted this research for the past 20 years and built a comprehensive data pool against which to benchmark firms.
This is how we can work across many, but not all, types of benchmarking. We can cut the data in whichever way(s) is most useful to your firm – to assess operational benchmarks, customer benchmarks, product benchmarks and so on. We analyse and present your standing in the market through our annual Beaton Benchmarks reports.
Beaton Benchmarks success stories
Read the full case study
How to benchmark your organisation
Best practices in benchmarking
- Define clear objectives: Identify the specific goals you want to achieve through benchmarking before you begin. For example, you may wish to discover what areas your firm excels in, to leverage competitive advantages in marketing for growth and new work. Other common objectives are enhancing efficiency, improving the client experience and prospecting for new clients effectively.
- Choose relevant benchmarks: Select benchmarks (comparisons) that align with your firm’s size, industry and market. That means comparing your results to firms that are like your own – as these are most likely to be competing for the same clients and work.
- Involve key stakeholders: Engage leaders from different departments early in the process, rather than looping them in later. Their insights and buy-in to the process are crucial for successful implementation of new strategies after benchmarking has taken place.
- Standardise data collection: It’s essential to use consistent methods and tools for data collection – this data is what will be compared between your firm and others. It needs to be consistent, accurate and reliable. Ideally, it should be collected by a third-party research company to reduce potential for bias and irregular reporting.
- Focus on key performance indicators (KPIs): Identify and prioritise the KPIs that are most relevant to your firm. For example if you are a top-tier firm that caters to large corporate clients, you will likely have different priorities to those of smaller boutique firms catering to individuals. Focusing on the right metrics ensures you gain meaningful insights that have actionable results.
- Analyse and interpret: The most valuable benchmarking works beyond surface-level comparisons. Analysing the data in depth with accuracy and fairness may require the assistance of benchmarking experts. A research firm like Beaton can identify statistical gaps and present information in the most easily understood format, giving weight to the areas that require the most immediate attention.
- Develop actionable insights: Once you have the data in a digestible format, your leadership team can develop strategies to implement change and improvements. Clear, actionable recommendations are most useful. The recommendations should be practical while also aligned with your firm’s resources and capabilities.
- Implement improvements: This is where the buy-in you sought from leaders at the start of your benchmarking process becomes valuable. You will need the assistance of other departments to implement organisational change, and to ensure the benchmarking results are put to good use. Develop a plan with timelines, responsible parties and metrics to track progress.
- Monitor and review: Regularly check the progress of implemented changes and review their impact on performance. A great way to do this is to conduct the same benchmarking study annually, so you may see results before and after changes were applied. Regular reviews allow you to make necessary adjustments and sustain improvements over time.
- Maintain confidentiality and ethics: This is crucial throughout the entire process of benchmarking and requires expertise plus rigorous systems to ensure data safety. Research firms like Beaton can ensure you adhere to ethical standards and maintain confidentiality of the sensitive data you gather.
Looking to benchmark your firm?
Get actionable client feedback and tailored benchmarking
Registration for Beaton Benchmarks is now open for a limited time. Participate for free in the largest, most comprehensive client sentiment industry benchmarking study in professional services.
The biggest challenge in benchmarking
The most common challenge businesses encounter when benchmarking involves data collection and quality. Obtaining accurate, relevant and timely data is very difficult. That’s why entire research companies like Beaton spend decades honing their methods, investing in know-how and technology, and building their data pools.
Businesses that try to conduct benchmarking without the help of a research company face myriad issues: lack of consistency in data sets, different methodologies and standards used to collect data, outdated information and incomplete data. All of it can hinder your ability to make comprehensive comparisons and draw meaningful – or even accurate – conclusions for your firm. As a result, many will either give up or try to use a research firm after already having wasted many hours and resources trying to do it “in house”.
Data collection for benchmarking needs to be standardised, consistent and reliable. Credible sources are crucial. Regularly verifying the data and vetting the sources ensure accuracy and integrity of your benchmarking report.
At Beaton we address all these issues for you – enabling you to obtain high-quality benchmarks for effective and informed decision-making. If you are considering benchmarking for the first time, our biggest piece of advice after 20 years in the field would be this: use a research firm that has experience in the type of benchmarking you are looking to do!
The risk for firms that are not benchmarking
Failing to engage in competitor benchmarking means you risk falling behind the progress of the market. This progress occurs quickly in professional services – so quickly that we have seen firm ratings improve substantially over the past decade.
In 2013, 20 per cent of law firm clients rated their firms with an excellent score (nine or 10 out of 10) in the annual client feedback data collection used to judge the Client Choice Awards. Almost a decade on, in 2022, this has jumped to 32 per cent of clients rating their firms with an excellent score.
Based on this evidence, your firm needs to be improving annually, simply to keep up with the market. If you want to grow your client base and revenue, you need to be growing faster than the market.
Benchmarking helps you identify strength areas in which your firm performs better than competitors and can invest in them. On the flip-side, it will notify you of areas where your firm is underperforming and requires determined action.
If you are not benchmarking, you may be missing critical insights that could enhance your strategic positioning. Inefficiencies arise, and typically decision-making is more difficult or slower without timely and accurate competitor information. This all leads to stagnating growth and a diminished reputation in the market.
Crucially, not leveraging regular client feedback can lead to weakened client connections in the long-term.
Case studies: Successful benchmarking in professional services firms
A leading commercial law firm’s experience with benchmarking
Brisbane-based commercial law firm Cooper Grace Ward implemented benchmarking to deepen its understanding of the buyer cycle and gather evidence to make informed decisions on strategic initiatives. The firm conducted benchmarking research each year through Beaton Benchmarks.
Among other benefits, the firm improved its Net Promoter Score (NPS) to 60, which is well above the average of its competitors (26.8), and client ratings of the firm improved by 10 per cent over five years.
Table of contents
Actionable client feedback and tailored benchmarking
Registration for Beaton Benchmarks is now open for a limited time. Participate for free in the largest, most comprehensive client sentiment industry benchmarking study in professional services.
