What is benchmarking... and why should we care?

What will help the 'best in class' community business succeed?

Sarah Thelwall

Author of Follow The Money

In life, we benchmark all the time. It is just that we tend not to call it that.

Any advert that encourages you to compare the price of their goods to their competitors’ – think national supermarkets – is encouraging you to benchmark. A league table of Olympic medal wins per country is also a benchmark.

It is a good moment to think much more about why the same process matters for community businesses and the wider third sector.

After all, we also find benchmarking all over the for-profit and non-profit worlds. Think about informal conversations with colleagues about which accountants or lawyers or consultants to work with and the quality, timeliness and price of their work; or the discussions across the sector about maximising gains from fundraising activities.

For Power to Change, benchmarking is in essence a learning tool. By analysing how the sector is working now – what helps the ‘best in class’ community businesses succeed, and comparing this with other community businesses, charities and indeed private firms – we will know more about supporting individual community businesses firstly to survive and then to thrive.

This can help everyone in the sector. Community businesses will understand more about themselves and how to judge their success. Power to Change will be better placed to make robust decisions about effective grant-making. And the wider third sector will know better how to judge community businesses (which after all grew more quickly last year than both charities and small businesses).

Helping community businesses
Community businesses should benefit in two main ways. It can help an organisation set goals, and it should contribute to communications with stakeholders, funders and customers.

Benchmarking helps with internal goal-setting by:

  • Enabling you to see where your strengths and weaknesses are by comparison to your peers and competitors
  • Reviewing the potential of different types of activity for income generation, which will assess the risk and likely return of, say, setting up a café compared to opening a shop compared to growing the membership base
  • Helping set targets for growth and profitability. It means moving beyond ‘like last year but plus/minus a bit’ and planning instead so that ‘to be best in class we should be aiming for …’

 

Benchmarking supports your communications with stakeholders by:

  • Strengthening your grant-funding applications and tender responses
  • Galvanizing your volunteers and members around areas where change is needed or where success deserves celebrating
  • Underscoring your achievements

 

Follow the Money
Today’s new report on benchmarking, Follow the Money, is an analysis of the financial models used by community businesses. It uses data supplied both by grantees and from the Charity Commission, and is particularly focused on income and cost models.

This means that to join the benchmark party all you need is a copy of your latest annual report or your current business plan. Armed with these and a copy of Follow the Money you can sit down over a cup of builders’ tea or a frothy cappuccino, and see how your business model stacks up against the headlines in the report.

What benchmarking like this won’t give you is a precise version of ‘your shop should be worth 20.3% of your total turnover’. But what it will give you is a steer as to whether each of your main income-generating activities is roughly on track, and whether it is worth looking in detail at investing more resources in one area as opposed to another.

So if you are already achieving above the average for, say, donations and sponsorship, then you might decide you are already about as strong as you are going to get in this area. And you may choose to turn your attentions instead to something else, and explore the growth of income possible from hiring-out the building you own. This is about working out the best way to use your resources in order to deliver the greatest benefit to your stakeholders and to the organisation.

There are never enough days in the week, nor enough money in the bank, to back all the ideas and take advantage of all the opportunities. A tool to help you evaluate where you’ll get greatest bang for your social impact buck therefore has a lot to offer.