5 Reasons Why Consultants Use Benchmarks (And Why You Should Too)

Fast Insights

Consultants are skilled or have experience in a particular field and typically work on a project basis for a limited period of time. They are also usually quite expensive, so clients will be looking to obtain value from consultants as fast as possible. This value will usually be in the form of useful insights based on prior experience with similar clients and projects.

Another way that consultants can provide fast insights is by comparing company metrics with relevant external data points, also known as benchmarking. This exercise is very useful to test and create initial hypotheses related to any project. However, obtaining relevant external data points can be challenging and time consuming. This only slows down the time to value equation for consultants. Fortunately, there are a number of research and data platforms that can speed this up.

For example, CompanySights is a leading provider of headcount benchmarking data, which can provide instant insights through its world class analytics platform. There are also more generalist benchmarking data providers, such as APQC, Gartner, and Mercer.

Independent Data

Consultants are engaged to provide a point of view or recommendation. Clients will expect that these perspectives are supported by reliable data, analysis, and experience. Most clients are interested in fully understanding the analysis performed and sources of information.

This is where it is helpful to have external data points, as they are independent of the company and consultant. Trusted external data helps to dilute bias in any recommendation or point of view. They are an extra datapoint that can provide a more complete picture for the client.

Identify Opportunities

The ability to identify opportunity in a business requires skill, experience, and data. To a seasoned businessperson it can be easy to identify areas of improvement in a sector that they know well. However, for most businesspeople it will require the development of hypotheses and then performing research and analysis to prove or disprove an opportunity. Benchmarking can speed up this process of identifying opportunities within a business.

For example, a retail business may decide to reduce costs to maintain profitability in a tough economic climate. The biggest operational cost in this business is people, but which people will they have to let go and why? Management ask a consultant to help. Early on this consultant performs external benchmarking for all functions and quickly identifies that the business is overstaffed in Sales, Marketing and Finance. This comes as no surprise to Management, and they focus their headcount reduction efforts in these functions.

Do you need access to external headcount benchmarks? Search the CompanySights Platform, which is backed by one of the largest headcount benchmark databases in the world with over 100,000 trusted data points.

Set Targets

Targets are an important part of any project, such as forecast costs following a business restructuring. The challenge for consultants (and Management) is what are these targets and why? External benchmarks provide a data point which can be used as a target.

For example, if a business is trying to reduce operational costs, then Management can review costs as % of revenue benchmarks, including but not limited to Sales and Marketing expenses, IT costs, and Administrative costs. Let’s assume that the business is above the benchmark average for IT costs, then this suggests that there is potential for IT cost reduction and the benchmark average can be used as the target.

Storytelling

The best consultants tell a story that results in a point of view or recommendation. This story typically starts with the current state of the process, function or company. Then it is a windy road that includes assumptions, analysis and analytics to reach the target state. This windy road is where the use of external benchmarks can play a pivotal role in the success of any story.

For example, let’s consider two versions of the same story. One is supported by external benchmarks and the other is not. Imagine that you are the client - Which story is more compelling?

Version 1: Pyjama Pants is a clothes manufacturing company that is losing money with $1M revenue and $2M in costs per year. The company can reduce its costs by $1.5M from better management of Sales and Marketing, Administration, and IT costs to make $0.5M profit.

Version 2: Pyjama Pants is a clothes manufacturing company that is losing money with $1M revenue and $2M in costs per year. The costs were split in to three categories and a benchmarking exercise was performed, as follows:

1.     Sales and Marketing – The company spends $0.3M and the benchmark average was $0.3M

2.     IT costs – The company spends $0.7M and the benchmark average was $0.1M

3.     Administrative costs – The company spends $1M and the benchmark average was $0.1M

Following this analysis $1.5M of cost reduction potential was identified in administrative costs ($0.9M) and IT costs ($0.6M) to result in $0.5M profit.