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 nicer.
*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.
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.
“What gets measured gets done!”
*If you are a restaurant owner what is your cost of goods sold (COGS), compared to other restaurants? The average is 37 percent.
*If you are a landscaper, do you know what your payroll costs are compared to other landscapers? The average is 22.50 percent 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 percent.
*If you are a real estate broker what should you be spending on marketing compared to other brokers? The average is 3.52 percent.
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 trade association for your industry
*You could always contact your friendly TSBDC for this type of comparison!
And if you just got a new smoker, I don’t want to hear about it. Mine is just fine.
Charles Alexander is the director of the Tennessee Small Business Development Center at Vol State.