Benchmarking

What it means

Benchmarking compares your own figures against a reference: the industry, competitors, your own prior year, or the best-performing site inside the company. Without a reference a number is only a number - an 18 % margin can be excellent or poor.

Only figures calculated the same way can be compared, which is why benchmarks are built on ratios - return ratios, margin, inventory turnover, cost per employee - rather than on absolute amounts.

Besides comparing figures there is process benchmarking. The company looks not only at what result someone else achieves but at how they get there: how fast they close the month, how they handle complaints, how many steps an order passes through. KPIs alone say that someone is better; only a look at the process shows what can be adopted.

How it works in practice

For Slovakia the data source is the register of financial statements, where other companies’ accounts, competitors included, are published. The same ratios can be computed from them as from your own reporting.

In tax the term has a precise meaning: under transfer pricing a comparable independent transaction is found by exactly this kind of benchmark study, and its conclusion goes into the documentation file.

For clients with several sites or branches we run internal benchmarking: the same measures for every cost centre taken from the sub-accounts, such as revenue per employee, overhead share and margin. A comparison inside the company is the most precise, because every unit is booked under the same rules and the figures are genuinely comparable.

What to watch out for

Comparing against an industry average only works for the same business model. A manufacturer holding its own stock and an agent sitting in the same SK NACE code have cost structures that cannot be compared, even when they sell the same goods.

The second mistake is forgetting that market data is old. Statements in the register cover a past period and are published months after the year ends, so a benchmark always shows the market with a lag. In years of sharp swings in energy prices or wages that picture can mislead more than help, so it should be paired with your own forecast.