5 Small Business Benchmarks to Check Against
Watch for these internal performance benchmarks at your business
As your small business matures, you’ll want to keep an eye out for various milestones to help gauge your business’s performance. The ATO uses external benchmarks to compare small businesses with similar businesses in the same industry as a method to identify businesses that are avoiding tax obligations. It is a little more difficult for you to know exactly how other small businesses function internally. They could be on the brink of collapse, and you’d never know, not until their building goes up for rent again. That’s why we’re going to explore some internal small business benchmarks that can help you make sure your business is still on track for industry success.
Retaining repeat customers
One of the most important benchmarks are customer retention rates. If you’re not keeping your customers coming back for more, then eventually your small business will start to lose out to competitors. A good business knows how to get new customers consistently, but that can be expensive and unreliable. A great business can convince its customers to come back for more. Repeat customers are a reliable source of income without the extra cost of marketing or outreach, which means even better profit margins for you.
Some of the things you can do include:
- Providing customers with a unique experience that fulfils their purchasing goals.
- Maintaining a strong online presence to remind customers you exist.
- Focusing on improving your customer service.
Armed with those tools, you’ll be well on your way to greatness.
One great way to benchmark the success of your small business is by looking at how long you’ve been in operation. The longer you’ve been around, the more likely it is that you’ll be successful. But there are other factors to consider as well. For example, businesses in certain industries tend to have shorter lifespans than others. So, if you’re a tech start-up that’s been in business for 5 years, you’re already ahead of the curve.
1 Year – While one year isn’t long for a business, it’s definitely an educational time for any new business owner. At the one-year mark, both challenges and successes may have come by to teach you more than you thought there was to know about running your business. That’s why we require a minimum of 1 year in operation to apply for our business loans. If those challenges haven’t scared you away, it’s a good sign for the future.
5 Years – Half of all businesses shut their doors in the first 5 years. While this doesn’t mean there’s just smooth sailing from here, you can celebrate passing the first major hurdle. Chances are you’ve found your niche and begun to perfect the systems and processes in your business. You’re really getting a feel for your industry and have the ability to identify other risk indicators that threaten your organisation.
10 Years – Once you hit 10 years, you’re in rare company. Only a third of businesses make it this far. To last this long, you’re probably doing something right. To avoid being part of the 25% that fail from here, find out what you’re excelling at and keep it up.
A strong business credit rating
Another performance benchmark you can track is your business credit rating. This number – which is separate from your personal credit score – will be used by lenders, landlords, and suppliers to help them decide if they want to work with you. A good business credit rating means they’re more likely to say yes, while a bad one makes a business seem less trustworthy. While OnDeck accepts loan applications from businesses with a 400 credit score minimum, you’ll want to build your business credit up to over 700 to unlock new opportunities with your suppliers. OnDeck’s Know Your Score tool lets you check your credit score for free while leaving no footprint, and we recommend you do so regularly so you get on top of any dips.
A competent and well-trained team
Of course, your small business is only as good as the team you’ve assembled to help you achieve your goals. As your business grows, you’ll eventually have to expand and begin hiring the best employees to keep up with the increasing workload. That means hiring a team, training them well, and keeping them up to date on the latest industry trends. Your employees are an investment, treat them well, give them access to good training and fair compensation, and they will be incentivised to stay with you and care about your business’s success. Being able to take a few days away from work and trust your team will be able to handle things without you is one of the most relieving small business benchmarks to hit.
Your first year of actual growth
Another small business benchmark is revenue growth. You can’t keep operating a business without money, but starting a business is expensive and usually isn’t profitable until a few years after launch. Until then, you should still track your business performance and growth. If your business isn’t growing, it’s either not appealing to new customers or losing the ones it has. While they’re not expected to be positive for a while, keep an eye on your revenue numbers to make sure they’re increasing over time.
After years of hard work (and maybe some good luck), you may have finally reached a point where your business is generating real revenue. Congratulations! This is a huge accomplishment and a great benchmark to track your progress. Once you hit the green, it’s time to start thinking about reinvesting that money back into the business to help it grow even more.
These metrics are just a general guide; every industry is different. If you have any concerns about your performance benchmarks, you should seek professional advice. Hitting these milestones are important indicators of a healthy, growing business. If you’ve already done so, congratulations on reaching these benchmarks! If you’ve yet to do so, then Ondeck can help you accelerate your business development. Either way, we hope this information helps with your future endeavours.
Frequently Asked Questions
What are small business benchmarks?
Small business benchmarks help assess performance by benchmarking a business’s performance against similar companies. This allows you to compare your progress and identify areas where your organisation needs to improve. The Australian Taxation Office releases benchmark ratios every year. They use them to identify businesses that may be avoiding their tax obligations using methods like cash transactions.
How do you calculate the benchmark of a company?
If you want an accurate comparison between sales costs and turnover, you divide the sales cost (costs like wages and motor vehicle expenses) by your turnover (total sales income from goods sold) and multiply by 100. This will give you a turnover percentage that can be compared to other small businesses in your industry and is useful when lodging business activity statements.
Freshbooks – Business Milestones
Tycoon Story – 10 important business milestones in the first 5 years
Fundara – What percentage of small businesses fail
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