Industry benchmarking studies can be a valuable tool for advisory firm owners to make better business decisions. By compiling and publishing data on firms across the industry, the studies enable owners to compare their firms’ performance side-by-side against that of their peers, giving the owners an expectation for how their firms should perform and insight into where they might be outperforming or underperforming the competition.
But despite the potential benefits, many firm owners choose not to use benchmarking studies. For some, this may be because the firm owners’ financial data might not be organized in a way that is compatible with participating in the survey and comparing to the results. For others, the sheer amount of data a benchmarking study provides may make it difficult to determine exactly which data points are most effective to track. And for still others, the amount of time required – from aggregating and submitting the firm’s financial information, to reading the study and comparing the firm’s performance with its results – can represent an obstacle to using benchmarking studies.
All three of the above issues, however, can be resolved with a systematic approach towards participating in and using industry benchmarking studies. By organizing the firm’s financial data to efficiently compare them with data from major industry benchmarking studies, focusing on a few key metrics that are the most relevant to the firm’s goals (rather than trying to compare every individual data point the survey provides), and – perhaps most importantly – knowing what the comparison with the benchmarking data actually says about the firm’s productivity, efficiency, and profitability, a firm owner can effectively use benchmarking studies to make decisions on how to further strengthen their business.
Furthermore, technological tools are emerging that can help reduce some of the time and resource burden on firm owners to track and analyze their financial data. Two such tools – AdvisorClarity and Truelytics – automate different parts of the process, and (depending on which part of the process the firm owner prefers to automate) either tool allows the firm owner to glean insight from benchmarking comparisons with less of an investment in time and resources.
Ultimately, the point of using benchmarking data is to better understand how an owner can improve their business. Because, while most advisors want to make their firms better in one way or another, they may not always understand which areas are already strong, and which could benefit most from improvement. By having an ‘average’ to compare against, it is possible to quickly see where these improvements can be made – meaning that the initial time investment of using benchmarking studies could ultimately save the firm owner a lot of time and effort in making their firm more profitable!
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