This Bad Habit Might Be a Good Thing

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.