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What is benchmarking?
The simplest way to think about benchmarking is to ask yourself, is your business the best it can be? Could you be getting more business? Could you be making more profit from the business you have? To get the answers to those questions, you need to find out what is possible for you to achieve. That is where benchmarking can help.
Benchmarking involves looking outside your own business to examine how other businesses are doing in order to identify standards of excellence and best practices that can help you improve your business’s performance and profitability. You can use benchmarking as a way to improve the business you have or to set targets for growing or expanding your business.
Why should I benchmark?
You may be thinking to yourself, I pay my bookkeeper or accountant to look after my business. Or, my business is unique and works for me; what do I care what other designers are doing? No question, if you are satisfied with your business, whether you feel it’s the best it can be or you’re content with how it is now, benchmarking will not appeal to you. On the other hand, if you’ve asked yourself any of the following questions, then benchmarking can help provide the answers you’re seeking:
- Are my fees and/or prices set at the optimum level?
- Do I have the right mix of fees and other sources of revenue?
- Am I earning what other designers at a comparable level of talent and experience are earning?
- Am I putting enough hours into my business to get the return I want or need? Or, conversely, am I putting too many hours into my business for the return I am getting?
- Am I paying too much for outsourced services?
- How could I reduce my overhead?
- I’d like to add another designer to my practice; what type of salary and benefits should I offer?
- Would I be better off outsourcing, collaborating or using freelance help than taking on an employee?
- I’d like to expand my business or add another area of practice to my business. What are the best opportunities for me?
How does benchmarking work?
Let’s say you’re trying to figure out a way to reduce your monthly expenses. Where do you cut? Of course, you could go through your list of expenses and determine what you think you could live without or with less of and come up with a number. But will cutting affect productivity or quality? By cutting those expenses now will you also be reducing revenue down the road? Six months from now, you may be pulling out your list and trying to decide what else you can cut. You could also ask the advice of some trusted colleagues or financial professionals. But what information are they drawing on to formulate that advice?
Now, suppose you could look at the expenses and profitability of a dozen, or multiple dozens, of firms—firms that are like yours (in size and level of business) and firms that are different—and quickly see how you compare to them. You might find that you are paying more for your office space than three-fourths of the other designers in your area, or that your technology costs are high for the number of employees in your firm. By benchmarking, you could possibly save thousands of dollars without compromising your business.
What is Design Business Benchmarking?
Design Business Benchmarking is a tool exclusively created for ASID that allows you to benchmark your interior design business on some 20 different metrics, including revenue, fees, salary, benefits, expenses, and firm size and scope. You can narrow or broaden your comparison by using preset filters. The results show you how your firm stacks up on each metric against other firms that match your criteria and against the median (the point at which half the firms fall below and have the firms fall above the line). Results are expressed as a percentile (where groups cluster along a scale from 0 to 100 percent).
As an example, you may want to see how your firm’s revenue compares to other firms in your state of the same size that do a similar number of projects. After using the filters to narrow your search to just those firms, you get a result like the one shown below.
In this example, you can see that the median for all the firms that match your criteria is $43,472. Your firm is at the 65th percentile. In other words, your firm earns more revenue than 65 percent of the other firms in your state that do a similar amount of business as yours does, and it earns less than 35 percent of those firms. If you’re curious as to why that other 35 percent is earning more, you can look at the other metrics to see where else your firm differs from theirs. Perhaps they are charging higher fees or selling more product. Without benchmarking, how would you know?
The more firms that participate in Design Business Benchmarking, the more valuable the information becomes. You can return to the tool anytime to rerun and fine tune your comparisons. By entering data for multiple years, you can also benchmark your own performance year over year.
Even if you are a sole practitioner with a small practice, Design Business Benchmarking can benefit you. Compare your firm with like firms to see where you stand on fees, product markup, labor and outsourced services, and operating expenses. You may not want to take on more business, but you could be keeping more of the money you are earning or earning more for the hours you are working.
To learn more about Design Business Benchmarking and view a video demonstration, go to www.asid.org/dbb.