One of the
worst habits we have in my household (well, I have) is comparing what we have
to someone else has.
And there’s
always someone with something nicerJ.
- We got a 55 inch 4k TV, but…my sister-in-law got a 75 inch TV that has such a clear picture I thought that Derrick Henry was in their living room.
- We
went to the beach in the fall, but…another family we know owns their own
beach house. And a lake house. And a cabin in the mountains. And blah, blah, blah.
We are
constantly comparing ourselves with others to measure how well we are
doing.
This is not a
very healthy thing to do on an individual basis.
But…
This could be
a good thing in your business!
No, you
shouldn’t stress out if a competitor has a new product or just moved to a
bigger location.
However, you
should be comparing your Income Statement to the industry average.
Why?
“What gets measured gets done!”
For example:
- If you are a restaurant owner what is your cost of goods sold (COGS), compared to other restaurants? The average is 37%.
- If you are a landscaper, do you know what your payroll costs are compared to other landscapers? The average is 22.50% and revenue per employee is $72,347.
- If you are a department store, do you know what your rent is compared to other department stores? The average is 5.36%
- If
you are a real estate broker what should you be spending on marketing compared
to other brokers? The average is 3.52%
Small
business owners do a good job of comparing their current business to what they
did last year, however, they need to know how their Income Statement compares
to the industry as a whole.
Common
measurements are your costs-of-goods-sold (COGS), net profit margin, current
ratio, percentage of expenses versus income, etc.
Comparing
against other businesses in your industry is a more accurate way to determine
how well you are doing and what you could improve upon.
Below are some great places to find these types of benchmarks
for your industry:
- Your CPA
- www.bizstats.com
- Your trade association for your industry
- You could always contact your friendly TSBDC for this type of comparison, charles.alexander@volstate.edu
p.s.
And if you
just got a new smoker, I don’t want to hear about it. Mine is just fineL.
