Business benchmarking helps you compare your company with competitors, internal locations, teams, or other relevant benchmarks to identify where performance is weaker, what could be improved, and which actions deserve priority.
Benchmarking is not about copying another business. It is about observing systematically, comparing relevant information, identifying meaningful gaps, and turning those findings into measurable improvements.
In this guide, you will learn what benchmarking is, the main types of benchmarking, how to conduct a benchmarking analysis step by step, which KPIs you can compare, and how to turn differences into an action plan.
You can also use the free Benchmarking Excel Template near the end of this guide to define your objective, document benchmarks, compare your business against three primary references, identify gaps, and track improvement actions.
This approach can be used by small businesses, ecommerce companies, physical stores, restaurants, service businesses, operational teams, and companies with multiple locations.
On This Page
- What Is Benchmarking?
- What Is Benchmarking Used for in Business?
- Benchmarking vs. Competitive Analysis
- When Should a Business Use Benchmarking?
- Types of Benchmarking
- How to Do Benchmarking Step by Step
- Benchmarking KPIs: What Should You Compare?
- Benchmarking Example for Ecommerce and Retail
- Quick Benchmarking Example for a Restaurant
- Benchmarking Checklist
- Common Benchmarking Mistakes
- Free Benchmarking Excel Template
- Frequently Asked Questions
What Is Benchmarking?
Benchmarking is a structured process for comparing a company’s performance, processes, practices, or customer experience with relevant internal or external benchmarks in order to identify gaps and improvement opportunities.
Those benchmarks may include:
- competitors;
- other locations within the same company;
- high-performing internal teams;
- market leaders;
- companies from other industries with strong practices;
- previous periods or internal performance standards.
Business benchmarking means comparing results or practices against relevant benchmarks, identifying meaningful gaps, and using those findings to improve a specific part of the business.
The comparison itself is not the final objective.
A useful benchmarking analysis should answer:
- What are we trying to improve?
- Who or what should we compare against?
- Which criteria or KPIs matter?
- Where are the important gaps?
- Which gaps deserve priority?
- What action should we take?
- How will we measure the result?
For example, an online store may discover that three comparable competitors offer more payment options, clearer return information, fewer checkout steps, and more complete product photos.
Simply observing those differences is competitive research. Benchmarking goes further by deciding which differences matter, converting them into improvement actions, and measuring what happens after the change.
What Is Benchmarking Used for in Business?
Benchmarking can help a business make decisions using external or internal reference points instead of relying only on assumptions.
It can be used to improve areas such as:
- sales;
- profitability;
- customer service;
- logistics;
- customer experience;
- productivity;
- response times;
- internal processes;
- ecommerce conversion;
- inventory management;
- store or location performance.
A useful benchmarking analysis connects three levels of the business:
| Level | What It Helps Answer | Example |
|---|---|---|
| Strategy | What should improve to support growth, sales, or profitability? | Improve online conversion |
| Management | How should the improvement be measured and managed? | Define KPIs, targets, owners, and deadlines |
| Operations | What needs to change in day-to-day execution? | Add payment options or reduce shipping errors |
Benchmarking can also be useful inside the same company.
If one store sells more, receives fewer complaints, or manages inventory more effectively than the others, internal benchmarking can help identify what that location is doing differently and whether the practice can be replicated.
Benchmarking vs. Competitive Analysis: What Is the Difference?
Competitive analysis and benchmarking overlap, but they are not exactly the same.
Competitive analysis typically focuses on understanding what other businesses are doing in the market, such as their prices, products, channels, promotions, positioning, customer experience, or marketing.
Benchmarking uses comparison to improve a specific process, result, or capability inside your own business.
| Concept | Main Focus | Typical Result |
|---|---|---|
| Competitive Analysis | Understand what other companies are doing | Market and competitor insights |
| Benchmarking | Compare performance or practices to improve something specific | Prioritized improvement actions |
For example, competitive analysis may identify that several competitors offer installment payments.
A benchmarking analysis would go further:
- compare payment options across relevant competitors;
- evaluate whether your business has a meaningful gap;
- estimate the possible impact on checkout conversion;
- decide whether the improvement deserves priority;
- assign an owner and due date;
- measure conversion after implementation.
If you are evaluating a business more broadly, benchmarking can also complement a SWOT analysis. SWOT helps identify internal and external strategic factors, while benchmarking can provide more structured comparisons around specific practices or results.
When Should a Business Use Benchmarking?
You do not need to benchmark every part of the business continuously. Benchmarking is most useful when there is a clear management question or performance problem.
Good moments to use benchmarking include:
- sales are declining;
- ecommerce conversion is falling;
- customer complaints or returns are increasing;
- one location performs significantly better than another;
- a competitor appears to be gaining market share;
- a process is slower or more expensive than expected;
- you are launching a new product, service, or channel;
- you need evidence to support an improvement decision.
For example, imagine a restaurant whose delivery orders are declining.
Instead of immediately lowering prices, the restaurant could compare itself with three similar local restaurants across criteria such as menu photos, bundles, delivery time, shipping fees, promotions, and customer ratings.
The analysis may show that price is not the main problem. Competitors may have better product presentation, clearer bundles, and faster delivery.
Types of Benchmarking
The type of benchmarking you use depends on the objective and where your benchmarks come from.
Internal Benchmarking
Internal benchmarking compares teams, departments, processes, stores, locations, or business units within the same organization.
Its main advantage is access to information. Because the comparison takes place inside the company, the data may be easier to obtain and more consistent.
Example: a company operates three warehouses. Warehouse A has fewer dispatch errors than warehouses B and C. The team compares the processes and discovers that warehouse A uses an additional verification step before an order is closed.
If that difference is responsible for better results, the practice could potentially be standardized across the operation.
Competitive Benchmarking
Competitive benchmarking compares your company with direct or aspirational competitors.
Depending on the objective, you might compare:
- prices;
- product assortment;
- payment methods;
- shipping options;
- return policies;
- product presentation;
- customer service;
- digital experience;
- delivery promises;
- publicly observable performance indicators.
Example: a fashion ecommerce company compares its store with three competitors and finds that all three offer installment payments, clearer return information, and more visual size guidance.
The relevant question is not whether those features should simply be copied. The question is whether they address a meaningful gap for your customers and your business.
Functional Benchmarking
Functional benchmarking compares a process with organizations that perform a similar function particularly well, even if they operate in another industry.
For example, a small clinic could study how hotels manage:
- reservations;
- arrival communication;
- customer reception;
- waiting experiences;
- service recovery.
The two businesses are not direct competitors, but both manage appointments, expectations, waiting time, and customer interactions.
Combined Benchmarking
In this guide, combined benchmarking refers to a practical analysis that uses more than one type of benchmark, such as internal performance, competitors, and functional benchmarks from other industries.
It is not presented here as a universally standardized benchmarking category. It is simply a practical way to combine several useful reference points when one comparison source is not enough.
For example, a company trying to improve its ecommerce operation could compare:
- its own previous campaigns;
- three direct competitors;
- strong marketplace checkout practices;
- delivery performance from logistics providers;
- customer service practices from another industry.
Summary of Benchmarking Types
| Type | What You Compare Against | When It Is Useful | Example |
|---|---|---|---|
| Internal | Your own teams, locations, or processes | When one part of the company performs better than another | Compare three store locations |
| Competitive | Direct or aspirational competitors | When you want to improve your position relative to the market | Compare ecommerce checkout experiences |
| Functional | Companies with strong processes, even in other industries | When you want to learn from a best practice | Learn customer reception practices from hotels |
| Combined | Several types of benchmarks | When one reference point is not enough | Compare internal results, competitors, and a process leader |
How to Do Benchmarking Step by Step
A useful benchmarking project should not begin by randomly browsing competitor websites. It should begin with a specific business objective.
A practical sequence is:
objective → KPIs or criteria → benchmarks → comparison → gaps → priorities → actions → follow-up
1. Define the Objective
Start by defining exactly what you want to improve.
A weak objective would be:
Analyze competitors.
That is too broad.
A stronger objective would be:
Compare the checkout experience of three relevant competitors to identify improvements that could increase ecommerce conversion.
Another example:
Compare dispatch performance across three locations to identify practices that could reduce shipping errors and late deliveries.
A good objective should clarify:
- the area you are analyzing;
- the problem you are trying to solve;
- the result you want to improve;
- the decision the analysis should support.
2. Choose the Right KPIs or Comparison Criteria
KPIs and criteria give structure to the comparison.
You do not need to compare everything. A focused analysis with a few relevant measures is usually more useful than a large spreadsheet filled with unrelated information.
For ecommerce, possible metrics and criteria include:
- conversion rate;
- average order value;
- cart abandonment;
- number of payment methods;
- checkout steps;
- delivery time;
- shipping cost;
- returns;
- customer complaints.
For operations, you might compare:
- dispatch errors;
- on-time deliveries;
- OTIF performance;
- cycle time;
- rework;
- productivity;
- service levels.
The important rule is consistency. If you compare percentages, use percentages across the benchmarks. If you compare days, use days. Qualitative criteria should also use comparable definitions.
3. Select Relevant Benchmarks
A benchmark is the company, team, location, process, or reference point you use for comparison.
The benchmark should be relevant to the objective.
Possible options include:
- a direct competitor;
- an aspirational competitor;
- a high-performing internal location;
- a company known for a strong customer experience;
- a functional benchmark from another industry.
Do not choose benchmarks simply because they are famous.
If your objective is to improve logistics, a company with an impressive social media presence may not be a useful logistics benchmark. If your objective is ecommerce conversion, price alone is not enough. You may also need to compare payment methods, product pages, trust signals, shipping, returns, and checkout.
The free template in this guide is designed around three primary benchmarks, which is usually enough to create a focused comparison without making the analysis unnecessarily large.
4. Compare Data, Processes, and Experience
Benchmarking does not have to be limited to numerical KPIs.
You can compare three useful dimensions:
| Dimension | What to Review | Example |
|---|---|---|
| Data | KPIs and measurable results | Conversion, delivery time, errors |
| Processes | How work is performed | Checks, responsibilities, tools |
| Experience | What the customer sees or experiences | Checkout, service, delivery, returns |
Two stores may have similar prices but very different conversion rates because one has clearer product information, more payment methods, easier returns, and faster delivery.
In that case, the important gap is not necessarily price. It may be the overall buying experience.
5. Identify Meaningful Gaps
A gap is the difference between your current situation and the benchmark.
Example:
Your business: 2 payment methods
Benchmarks: 4 to 5 payment methods
Possible gap:
Customers have fewer ways to complete payment than they do with the primary competitors.
Possible impact:
Limited payment options may create friction at checkout and reduce conversion for customers who prefer another payment method.
Not every gap deserves action. Some differences matter greatly; others may have little business impact.
That is why it helps to classify gaps by impact, effort, and priority.
| Gap | Impact | Effort | Priority |
|---|---|---|---|
| Limited payment methods | High | Medium | High |
| Incomplete product photos | Medium | Medium | Medium |
| Return policy appears too late | Medium | Low | High |
| Less attractive packaging | Low | Medium | Low |
6. Turn Findings Into Actions
This is where benchmarking becomes useful.
A weak finding would be:
Competitors have a better shopping experience.
That does not explain what should happen next.
A more useful action would be:
Add a clearer returns section to product pages and checkout within the next two weeks, then monitor checkout conversion and customer questions.
A practical action plan should include:
- the finding;
- the action;
- the related KPI;
- the baseline value;
- the target;
- measurement frequency;
- an owner;
- a due date;
- status;
- the result achieved;
- evidence or notes.
| Finding | Action | KPI | Owner | Due Date |
|---|---|---|---|---|
| Competitors offer more payment methods | Add a digital wallet and evaluate installment payments | Checkout conversion | Ecommerce Manager | 30 days |
| Delivery performance is weaker | Review carrier performance and measure OTIF | On-time delivery | Operations | 15 days |
7. Follow Up and Measure the Result
Benchmarking should not end when you identify the gap. It should end when you can determine whether the selected action produced a useful improvement.
Examples:
- If you add new payment methods, compare checkout conversion before and after the change.
- If you change a dispatch process, compare errors, delivery time, and complaints.
- If you improve product pages, compare conversion, customer questions, and returns.
The review frequency depends on the process. Some actions may need weekly follow-up; others may require monthly or quarterly evaluation.
Benchmarking KPIs: What Should You Compare?
The right benchmarking KPIs depend on the problem you are trying to solve.
| Area | What You Might Compare | Possible KPIs |
|---|---|---|
| Ecommerce | Shopping and checkout experience | Conversion rate, cart abandonment, average order value |
| Physical Retail | Store performance | Sales per square foot, inventory turnover, stockouts |
| Logistics | Shipping and delivery | OTIF, delivery time, order errors |
| Customer Service | Response and resolution | Response time, complaints, satisfaction |
| Marketing | Acquisition and conversion | Cost per lead, conversion rate, organic traffic |
| Operations | Internal efficiency | Productivity, rework, plan completion |
| Finance | Profitability and cost structure | Gross margin, operating cost, profitability by product |
Do not select a KPI simply because it is commonly used.
If the problem is conversion, focus on buying friction and conversion measures. If the problem is delivery, focus on lead times and service performance. If the problem is profitability, compare cost, margin, and product economics.
If your benchmarking project includes financial performance, you can complement the analysis with the break-even analysis guide or the cash flow forecasting guide when those metrics are relevant to the decision.
Benchmarking Example for Ecommerce and Retail
The free workbook includes a complete fictional example based on LittleNest Online, a children’s apparel ecommerce business.
The company wants to understand why checkout performance is weaker than expected.
Its objective is:
Increase checkout conversion from 1.4% to 1.9% within 8 weeks.
The current problem is:
72% of users abandon before completing payment.
The business selects three fictional benchmarks:
- BrightKids: a direct competitor with a simpler checkout and broader payment options.
- MiniWardrobe: a direct competitor with stronger product presentation.
- Nest & Co.: an aspirational competitor with a stronger overall digital customer experience.
Comparison
| Criterion | LittleNest Online | BrightKids | MiniWardrobe | Nest & Co. |
|---|---|---|---|---|
| Checkout Conversion | 1.4% | 2.2% | 1.9% | 2.1% |
| Payment Methods | 2 options | 5 options | 4 options | 5 options |
| Checkout Steps | 5 steps | 3 steps | 4 steps | 3 steps |
| Return Policy | Footer only | Product page and checkout | Product page | Visible with FAQs |
| Product Photos | 2 photos | 6 photos | 5 photos | 7 photos |
| Average Delivery Time | 5 days | 3 days | 4 days | 3 days |
Main Findings
- checkout conversion is 0.5 to 0.8 percentage points below the benchmarks;
- customers have fewer payment options;
- checkout requires more steps;
- return information appears too late in the buying journey;
- product pages provide less visual information;
- delivery takes one to two days longer.
The analysis does not prove that every difference causes the conversion gap. Instead, it provides a structured set of hypotheses and priorities that the company can evaluate through implementation and measurement.
Action Plan
LittleNest Online then converts the most important findings into actions such as:
- adding a digital wallet and testing installment payments;
- reducing checkout friction;
- making return information easier to find;
- improving product photography;
- reviewing logistics alternatives.
Each action is connected to a KPI, baseline, target, owner, due date, status, and evidence.
This is the purpose of benchmarking: compare → identify gaps → prioritize → act → measure.
Quick Benchmarking Example for a Restaurant
Imagine a restaurant whose delivery orders have been declining.
Before lowering prices, the manager compares the restaurant with three similar local competitors.
| Criterion | Your Restaurant | Competitor Pattern |
|---|---|---|
| Menu Photos | Few photos | Photos for most dishes |
| Bundles | None | Several bundles |
| Delivery Time | 55 minutes | 35–40 minutes |
| Promotions | Occasional | Weekly |
| Average Rating | 4.1 | 4.5–4.7 |
The comparison suggests that price may not be the only problem.
Possible initial actions might include:
- improve menu photography;
- create two profitable bundles;
- review preparation times;
- test one weekly promotion;
- measure order volume for four weeks.
The point is not to copy every competitor practice. The goal is to identify which improvements are relevant to your customers and feasible for your economics and operation.
Benchmarking Checklist
Before closing your analysis, review this checklist:
| Question | Check |
|---|---|
| Did you define a clear objective? | |
| Did you choose the appropriate type of benchmarking? | |
| Are your benchmarks relevant to the objective? | |
| Did you document where the benchmark information came from? | |
| Are you comparing equivalent units and definitions? | |
| Did you focus on a manageable number of KPIs or criteria? | |
| Did you identify specific gaps? | |
| Did you classify gaps by impact, effort, and priority? | |
| Did you convert important findings into actions? | |
| Does each action have an owner and due date? | |
| Did you define how the result will be measured? |
If several answers are still “no,” the benchmarking project is probably not ready to guide a decision.
Common Benchmarking Mistakes
1. Comparing Without a Clear Objective
Looking at competitors without a specific question creates a large amount of information with little decision value.
Start by defining what you actually want to improve: conversion, delivery, margin, customer experience, productivity, service, or another specific result.
2. Copying Without Adapting
A practice that works for a large competitor may not make sense for a smaller business with different customers, margins, capabilities, or operating costs.
The better question is:
What can we adapt to our business without damaging profitability, operations, or our value proposition?
If the analysis suggests a major change to how the business creates or delivers value, reviewing your Business Model Canvas can help connect the benchmarking finding with the broader business model.
3. Measuring Too Many Things
More data does not automatically produce better decisions.
If you compare dozens of unrelated indicators, the team may struggle to identify what should be improved first.
Focus on the measures that are most closely connected to the objective.
4. Choosing the Wrong Benchmarks
A company may appear impressive but still be a poor benchmark for your specific question.
It may serve another customer segment, operate with a completely different cost structure, or use a different business model.
Choose benchmarks because they are relevant to the process or result you want to improve.
5. Using Unreliable or Inconsistent Data
Benchmarking depends on comparability.
If one number represents monthly performance and another represents annual performance, or if two companies define a KPI differently, the comparison may be misleading.
Document the source and date of the information and make sure the measures are reasonably comparable before drawing conclusions.
6. Turning Correlation Into Causation
If a competitor has more payment methods and a higher conversion rate, that does not automatically prove that payment methods caused the difference.
Benchmarking identifies gaps and possible improvement hypotheses. When possible, implement changes carefully and measure whether the expected result actually occurs.
7. Failing to Turn Findings Into Actions
A benchmarking report without an action plan remains a diagnosis.
Important findings should result in an action with an owner, due date, related KPI, target, and follow-up.
8. Not Measuring Before and After
If you do not preserve the baseline and measure again after implementation, you will not know whether the change actually improved the result.
For example:
- Conversion before: 1.4%
- Action: add payment options and reduce checkout friction
- Conversion after: 1.8%
- Change: +0.4 percentage points
The next question is whether the improvement is large enough and sustainable enough to justify keeping the change.
Free Benchmarking Excel Template
You can use the free Benchmarking Template for Excel to organize the process without building a large benchmarking report from scratch.
The workbook is designed for a basic-to-intermediate analysis and follows the same practical sequence explained in this guide.
What the Benchmarking Template Includes
| Sheet | Purpose |
|---|---|
| Instructions | Explains how to use the workbook, replace the example, and avoid changing technical areas. |
| Glossary | Defines the main benchmarking, comparison, prioritization, and follow-up terms used in the workbook. |
| Benchmarking Setup | Defines the analysis name, company, area, benchmarking type, objective, problem, period, owner, and review dates. |
| Benchmarks | Documents up to three primary benchmarks, their type, source, why they were selected, and what will be observed. |
| Comparison | Compares your business with three benchmarks and records the gap, impact, effort, and priority for up to 30 criteria. |
| Action Plan | Turns findings into measurable actions with KPI, baseline, target, frequency, owner, due date, status, result, priority, evidence, and Data Check. |
| Lists | Technical support sheet used by the dropdown menus. It should not be edited. |
How the Template Helps You Control the Analysis
The workbook includes an Action Summary that shows:
- Pending actions;
- In Progress actions;
- Completed actions;
- Discarded actions;
- Actions Considered;
- Total Recorded;
- Overall Progress;
- Data Review Required.
The Data Check column in the Action Plan helps identify incomplete records, invalid dates, unsupported status values, incorrect frequencies, invalid priority values, and exact duplicate actions.
If Data Review Required is above zero, correct those records before relying on the Action Summary.
The workbook does not automatically decide whether every KPI target has been achieved because different actions can use different units, such as percentages, days, number of options, or weekly volumes. You should interpret the result using the related KPI, baseline, and target.
How to Use the Benchmarking Template
- Define the objective and scope in Benchmarking Setup.
- Record the three most relevant benchmarks and document their sources.
- Compare your business using equivalent KPIs or criteria.
- Identify the gap for each important criterion.
- Classify the gap by impact, effort, and priority.
- Move the most relevant findings into the Action Plan.
- Define the KPI, baseline, target, owner, and due date.
- Update status and results as actions progress.
- Correct any row flagged by Data Check.
- Review Overall Progress and measure whether the implemented changes improved the business result.
The workbook includes the complete LittleNest Online example so you can understand how the process works before replacing the example with your own information.
Frequently Asked Questions About Benchmarking
What Is Benchmarking in Simple Terms?
Benchmarking means comparing your business, process, or performance with a relevant reference point to identify what could be improved. The benchmark may be a competitor, another location in your company, a market leader, or an organization with a strong practice you want to study.
What Is the Difference Between Benchmarking and Competitive Analysis?
Competitive analysis focuses on understanding competitors and the market. Benchmarking uses comparison to identify gaps in a specific process, practice, or result and turn those findings into improvement actions.
What Are the Main Types of Benchmarking?
Common approaches include internal benchmarking, competitive benchmarking, and functional benchmarking. A company can also combine several types of benchmarks in one analysis when that provides a more useful reference point.
How Many Competitors Should You Benchmark?
There is no universal number that works for every project. For a focused small-business analysis, three relevant benchmarks can often provide enough comparison without making the project unnecessarily complex. The template in this guide is designed around three primary benchmarks.
How Often Should Benchmarking Be Done?
The appropriate frequency depends on the area and how quickly conditions change. Ecommerce and digital customer experience may require more frequent reviews, while some operational or internal process comparisons may only need to be repeated when performance changes or after an improvement initiative.
What KPIs Are Used in Benchmarking?
The KPI should match the objective. Ecommerce benchmarking may use conversion rate, cart abandonment, average order value, or delivery time. Logistics benchmarking may use OTIF, shipping errors, and cycle time. Financial benchmarking may use margins, operating cost, or profitability measures.
Can Benchmarking Use Qualitative Information?
Yes. Not every useful comparison is numerical. You can compare processes, customer experience, checkout steps, return-policy visibility, service practices, or operational procedures as long as the criteria are defined consistently enough to make the comparison meaningful.
Does Benchmarking Mean Copying Competitors?
No. Benchmarking is used to understand performance gaps and learn from relevant practices. Any improvement should be evaluated against your own customers, costs, capabilities, strategy, and business model before implementation.
Final Thoughts
Benchmarking is useful when it helps you move from comparison to better decisions.
Start with a clear objective. Select relevant benchmarks. Compare only the KPIs and criteria that matter. Identify meaningful gaps. Prioritize by impact and effort. Then convert the strongest findings into actions with an owner, target, due date, and follow-up.
The goal is not to become identical to another company. The goal is to understand where better performance or better practices exist, decide what is relevant to your own business, and test whether an adapted improvement produces a measurable result.
You can use the free Benchmarking Excel Template to organize that process from the initial objective through comparison, prioritization, action, and follow-up.
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