ITR Experts Say: Benchmarking Your Performance Versus Your Markets

A valuable self-assessment tool, benchmarking provides firms a barometer of their performance relative to their markets or peers. At ITR Economics, we often help businesses with this process by plotting their 12/12 rate-of-change (for sales, orders, or any other metric of company performance) versus the 12/12 rates-of-change for the vertical markets into which they sell.

The resulting output indicates whether the business is underperforming, outperforming, or simply keeping pace with market growth.

Typically, rise in a market-specific 12/12 will correlate to rise in the company sales 12/12, and decline will correlate to decline. This is not surprising, as the market data is a demand driver for the company’s sales performance.

However, parallel movement between the two data streams is not the only possibility. If the market underlying a company is accelerating (indicated by ascent in the 12/12 rate-of-change for that market data), but the company’s 12/12 is declining, or vice versa – if the company 12/12 is rising while their market 12/12 is declining – it’s often a sign that forces other than the macroeconomy are impacting company performance. To maintain accurate benchmarking efforts, company leadership must explore, clearly understand, and account for these forces.

There are both positive and negative factors that influence performance and cause businesses to perform differently than their markets. Positive factors that can result in a company outperforming its markets include:

• Market-share gain
• Implementation of successful promotional or marketing campaigns
• Merger and acquisition activity
• Entry into new, previously unserved vertical markets
• Successful price increases
• New product launches that fill existing gaps in portfolios

Negative factors that typically cause a company to underperform its markets include:

• Market-share loss
• New competition entering the fray
• Production capacity constraints
• Supply-chain or distribution network disruptions
• Changes to the regulatory environment
• Loss of competitive advantage

All extra-market developments, positive and negative, must be recognized to maintain benchmarking integrity.

ITR economists consult with clients on an ongoing basis to help identify and account for these factors. Please contact us at itr@itreconomics.com if you’re interested in exploring company benchmarking for your business, or to discuss other ways to gain better insights into your firm’s performance.