Benchmarking establishes a reference point so you can gauge the success or failure of marketing and service strategies even when there isn’t an obvious cause and effect. We naturally want to know how our results compare to our competition and try to benchmark against them. It’s impossible to create realistic and accurate comparisons to other companies. Looking at the competition for insight into their strategy is a good thing. Investing resources in specific analytical comparison is wasteful and counter-productive. Use those resources to create solid internal benchmarks instead.

The first step in every plan should be to get all of the participants on the same page. This eliminates (or at least reduces) miscommunication and confusion. Sometimes we forget this in our haste to share information or get started. I tend to forget this step when writing about benchmarking and presume that everyone sees it the same way. When I wrote “Why Benchmarking against Competitors doesn’t Work,” I left the interpretation of benchmarking to the reader. I’m taking a step backwards and defining it so we start out on the same page.

Benchmarking began as a surveyors’ term. Permanent marks were placed as a reference for an exact elevation. All reference points after that were in relation to the original benchmark. It is a specific and exact science. Over time, the term was borrowed and used to denote a standard measurement that can be used for comparison. When I say “benchmark” or “benchmarking”, I am always referring to a metric that can be accurately and repeatedly measured. It is an exact science in my engineering mind.

Using benchmarks in marketing and service help measure the unknown. It is especially important now that we have the social channel where identifying cause and effect seems close to impossible. Establishing internal benchmarks is not for the weak of heart because capturing the information needed and converting it into usable information is hard work and requires a long-term commitment. The benefits far outweigh the challenges making it a worthwhile investment.

Direct marketers use benchmarks on a regular basis. They usually call them “controls” and measure new campaigns against the proven performer. Internal benchmarks have to go deeper than a promotional campaign control to maximize your return on investment. Service levels, operational costs, and profitability must be added to response rates, average orders, customer acquisition and other marketing metrics. This gives you a reference point that encompasses the whole organization instead of one area. When a company has comprehensive benchmarks in place, cause and effect is easier to see.

For example, if a social media campaign goes viral at the same time sales increase, does that mean that it is driving revenue? Maybe. Maybe not. If there was also an improvement in service levels at the same time, the additional sales could be generated by improved customer experiences. Without benchmarks, the increase would most likely (and possibly erroneously) be attributed solely to the social activity.

Benchmarking within an organization provides additional insight into contributing factors for sales and profitability. The more you know, the better you can plan and grow your business.

One statement in “The Numbers that Really Matter to Your Business” got a lot of attention because people didn’t agree with it. I wrote, “There is simply no way to compare metrics from different companies and deliver realistic results.” Responses varied from simply stating that the reader disagreed to explanations as to why I don’t understand how things work.

There are several reasons why benchmarking against competitors doesn’t work and won’t deliver realistic results. Before diving in, there is one qualification. My statement does not include manufacturing and bulk warehousing. Companies that produce the same products with the same equipment and automation can compare production metrics. Comparisons are helpful even when the equipment and automation varies because it allows the less automated company see the potential gains if they upgrade. Bulk warehousing is similar to manufacturing. Product moved by pallet load is similar no matter what items are being moved. Weight and distance differentials can be scaled.

Marketing and service metrics are different. There are too many variances to provide a realistic comparison. This includes:

Corporate Culture – Every business is different because companies are comprised of people. The responses to marketing and service vary by individual preferences.

Customers – All customers are not created equal. Ask anyone who has bought a business to find that half of the people in the customer database are hit & runners. Comparing response rates between companies is an exercise in futility.

Service – Quality of service is directly related to customer expectations. People expect different things from different companies. Expectations can be managed but they can’t be controlled.

Costs – Corporate expenses are dependent on so many factors it is impossible for an outsider to verify accuracy. Service levels, pay scales, bonuses, productivity, and perks are a few of the items that can vary. It’s hard enough defining the costs of doing business for your company. Why try to do it for another?

Productivity – The time required to serve customers and fulfill orders varies between companies. Order dynamics drive productivity. For example, apparel companies that have an average of three items per order can have very different productivity levels. If one typically has orders with three pieces of soft goods and the other has two pieces of soft goods along with a pair of shoes, the processing time will vary.

Social Activity – Comparing social activity is useless unless the companies are having the same conversations with the same people. We have clients that have very little community participation but are generating revenue every day from their social activity. We also have clients who have extremely active communities that also generate revenue. Which one is best? Both. Can they be compared? No.

ROI – Calculating the return on investment requires accurate information across the board. It is highly unlikely that you will receive everything you need in real numbers.

Transparency – Sharing proprietary information is foolhardy. If a competitor shares metrics for comparison, don’t expect them to be accurate. In some cases, there are errors in the collection and documentation. In others, the numbers are adjusted for appearance.

Wanting to know how your business compares to the competition is understandable. Asking questions so you have an idea of what they are doing and how it affects their metrics is a good way to get some insight. Trying to benchmark your business by another company’s standards is a waste of resources and will do more harm than good in the long run. Benchmarking against yourself and striving for continuous improvement is a much better way to succeed.

PS: Thank you to those who shared their opinions with me and inspired this post.

Creating benchmarks that work to grow your business and improve profitability along the way requires an intimate knowledge of your company, customers, and team members. Your competitors’ metrics choice rarely matters except to provide fodder for bragging rights. If they have 10,000 Facebook followers and your company has 100,000, it may look good to your CEO but it doesn’t mean that you are ten times better. You may be much worse because their 10,000 may consist of loyal customers while your 100,000 are people who liked you when you said something funny or shared a viral video.

The same is true with customers. If your competitors have 200,000 people in their active customer file to your 100,000, you may still be light years ahead of them. Their file may have 150,000 hit & run customers to your 10,000. There is simply no way to compare metrics from different companies and deliver realistic results.

Competitors’ service levels don’t matter either. If your customers expect to receive their order in five days and receive it in four, you’ve exceeded their expectations even if your competitors are delivering orders in three.

Everything is relative and must be treated as such. Defining the numbers that really matter for your business is a project that starts with sales and profitability. It then drills down to the cause and effect items that ultimately make or break businesses. The process of identifying and analyzing the data for the benchmarks is as important as the final results because you discover things along the way.

When looking at data, invariably you’ll notice things that aren’t showing up on reports. Things like items being ordered together, oddities in shipping times, and abnormal service requests. The process is so beneficial at providing insight to unexpected events and effects reviewing the raw data on a regular basis is a best practice.

There are numbers that matter for every business. They are your starting point for defining benchmarks. They include:

• Sales Dollars
• Orders/Transactions
• Average order/transaction (This helps you compare channels and campaigns.)
• Customer Acquisition, Retention, and Attrition
• Service Levels
• Costs
• Profitability

When these numbers are established as benchmarks, start drilling down into your data for more information to help you grow your business. You may just find a gold mine.

Keeping customers actively buying products and services is a key component of every marketing and service strategy. The longer people remain in the buying funnel, the greater their lifetime value and contribution to corporate profitability. People can easily shift loyalties with a click of a button in our global marketplace. This makes it much harder to keep them actively engaged and committed to your business.

Companies with storefront are better equipped to keep customers because they have the opportunity to build face-to-face relationships. Ask anyone who is extremely loyal to a brand why they love it so and invariably you’ll receive a response similar to these: “The products/service is amazing.” or “Ben always takes good care of me.”

When people have good relationships with individuals within an organization, they are more loyal.

Amazing products and services contribute to loyalty but there is always another option available. If not today, rest assured that someone is working on one to replace your best sellers. The only way to guarantee a loyal customer base is to create unbreakable bonds. This is done one person at a time.

Pure play direct marketing and ecommerce companies are at a disadvantage when competing with bricks and mortar organizations. Creating bonds with individuals is much harder when transactions are handled electronically. Social media changes the playing field because it provides a venue for the one-to-one connections that create unbreakable bonds.

Capitalizing on this opportunity requires a strategic plan that includes connecting with customers across channels. The plan must include building a community of customers. Companies are investing too much money in the hopes of launching viral campaigns. Connecting with customers delivers a better return on investment. To get started, replace passive links to social media networks with aggressive campaigns that invite customers to join your communities and reward them for doing so.

Connecting with customers takes more effort and time to build your communities than typical social media acquisition strategies.

The rewards are greater too. When customers are the foundation of your community, they help you answer questions, introduce new people to your business, and respond better to your promotions. People who are actively participating in brand communities have longer customer lifespans and higher lifetime values. And, one more thing…they look forward to your marketing messages instead of complaining about them.

If everyone knows your business, you don’t have one. Yielding to the cry for complete corporate transparency is the first step down a slippery slope that leads to your company’s failure. The question that needs to be asked in every boardroom is “how transparent do we need to be?”

The best response is that your business must have a “need to know” transparency policy. Providing people with the information they need to know at the time they need it is good business. Operating in a glass house with no boundaries is reckless endangerment of your company’s future.

What do people need to know?

Specific answers have to be defined by your executive board. The roles people play determine the information they need. In general:

Customers need to know:

• Buying and return policies
• Operating hours
• How to place an order
• Who to contact when there is a problem and how to do it
• How to use your products and services
• Where to find answers to frequently asked questions
• How to connect with your business online

Vendors need to know:

• What’s required to introduce new products and services
• Purchasing and payable policies
• How to submit invoices
• Who to contact if there is a problem and how to do it
• What’s acceptable in social sharing

Employees need to know:

• Hiring and firing policies
• Who to contact if there is a problem
• What’s expected from them (this includes a specific job description)
• How to improve their job position
• What’s acceptable in social sharing
• Everything that is required for them to do their job (including cross-departmental information.

Competitors need to know:

• As little as possible

There are different expectations for private and publicly traded companies. All legal transparency requirements must be fulfilled. Shareholders need to know how the company is doing and what to expect.

Transparency is good when it provides information on a need to know basis. Companies prosper when people have the information they need at the time they need it. Operating costs are lower and sales are higher. When transparency crosses the line to free-flowing information, company activity becomes an operating manual for competitors.