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  • Writer's pictureJordan Silverman

What is Benchmarking and why do all the PE Companies Do It?

Today, we are diving into the world of benchmarking - a term commonly used by Private Equity (PE) companies. Let's break down what it means and why it's a crucial tool for any business, especially yours.

What is Benchmarking?

  • Definition: Comparing your business's processes and performance metrics to industry bests or best practices from other companies.

  • Goal: Identify where your business stands in the industry and find opportunities for improvement.

  • Components:

    • Internal Benchmarking: Comparing performance between different teams or divisions within your own company. Have multiple locations? Comparing side by side is a prime example of internal benchmarking

    • External Benchmarking: Analyzing how your business performs against other companies in the industry. Make sure to compare to peers of similar size and type not the industry giants

    • Functional Benchmarking: Comparing specific functions (like marketing or manufacturing) between companies, regardless of industry.

Why Do PE Companies Use It?

  • Better Decision Making: Helps in identifying the strengths and weaknesses of a business, leading to informed and strategic decisions.

  • Increasing Efficiency: By spotting best practices in the industry, companies can adopt new methods to increase efficiency. Copying and putting your own twist on it is more than okay!

  • Enhancing Profitability: Benchmarking often leads to adopting strategies that enhance profitability by optimizing costs and processes.

  • Competitive Advantage: Helps in establishing a competitive edge by understanding where your business stands in comparison to rivals.

How Can Small Businesses Benefit?

For small businesses like yours, benchmarking can serve as a powerful tool to foster growth and profitability. Here’s how you can benefit:

  • Understanding Costs: Benchmarking aids in comprehending your business costs more clearly and helps in finding ways to manage them better.

  • Identifying Opportunities: By comparing your business with others, you can easily spot opportunities for expansion or improvement.

  • Resource Allocation: Helps in allocating resources more wisely, focusing on areas that offer the highest return on investment.

  • Strategic Planning: It can be a vital part of your business planning, helping to set realistic goals and objectives.

Benchmarking isn't just for the big players in the industry; it can be a critical tool for small businesses seeking to grow and thrive. At Starfish, we are committed to helping you understand, benchmark, and lower your costs effectively.

Remember, knowledge is power. The more you know about your industry standards and where you stand, the more equipped you are to steer your business towards success.

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