Industry benchmarks are the points of comparison of businesses within the same industry. Common points of comparison include financial performance, inventory turnover and percent defects. Businesses use industry benchmarks to gauge where they stand against the competition and identify potential weaknesses and areas of improvement. Industry benchmarks can be broken down into business, market, manufacturing and production categories. When industry benchmarks are not available, a business can rely on benchmarking itself against its own historical performance.
Business benchmarks refer to ratios and figures based on sales, inventory and customers. These industry benchmarks are important for businesses to assess their performance in areas such as its cost per sale, inventory turnover and customer retention. When reviewing benchmarks set by competitors within the industry, a business needs to keep in mind specific circumstances or strategies that affect the numbers being compared. For instance, if a competitor has a higher inventory turnover ratio, it could be because it sells products at a significantly lower price, or it is offering a newer model that has a higher demand. The key is to find out why the differences exist, to determine if the business should undertake a different strategy to be more competitive.
Market benchmarks are the comparative figures used to compare something against the average of the market. For example, investors use them to compare a financial instrument’s performance against the overall performance of the Dow Jones Industrial Average (DJI). Other markets used as benchmarks include the Standard and Poors 500 (S&P 500), National Association of Securities Dealers (NASDAQ), and the Toronto Stock Exchange 300 Composite Index (TSE 300).
Manufacturing benchmarks are usually meant for specific types of jobs or equipment within the industry. This type of benchmark can include numbers on materials, cutting speeds, and welding deposition. Since the numbers may sometimes not be readily available, businesses can use its own benchmarks to compare its current performance against that of various periods. In the United States, manufacturing benchmarks are provided by the Society of Manufacturing Engineers (SME), Fabricator Magazine and a select number of other manufacturing publications.
Production benchmarks are useful for determining how a producer's benchmarks compare with others within the industry. For example, the North Dakota Beef Cattle Improvement Association provides the average performance of certain producers to help these businesses compare their herd values and evaluate their performance. Production benchmarks are available for various production sectors, ranging from ranchers to vegetable growers.