Benchmarks - a concept for only the most mature and advanced company or a foundational metrics component for any company seeking to make data-driven, metrics-informed decisions?
Lauren Kelley is the founder and CEO of OPEX Engine, a leader in capturing and publishing B2B Technology company benchmarks. Lauren's background includes being the revenue leader for an early B2B platform leader, and prior to that as an economist for the US Department of Commerce.
Immediately prior to recording this podcast, Bain and Company announced their acquisition of OPEX Engine, which goes a long way towards establishing the VALUE of B2B Cloud benchmarks.
Lauren's vision has evolved over the 15-year history of OPEXEngine. Initially, Lauren believed that the real value was in the "operating benchmarks" as they are so much harder to capture and see how your internal KPIs measure up. Traditionally, operating executives would reach out to "known" contacts in the industry who had experience in similar companies.
How are companies using benchmarks to inform their decision-making process? The primary use of benchmarks tends to be on an annual basis, or as Lauren calls an informational "benchmark user" to help with the budget and planning process. On the other end of the spectrum, the strategic "benchmark user" understands benchmarking is a management process and will use the benchmarks on a much more regular basis - similar to how they would use internal metrics and data to assist in the decision-making process.
Strategic users of benchmarks will work closely with their business partners (operators) to dive into the next level to see why certain "top-level" metrics are out of line with industry benchmarks. Benchmarking is not just to identify problems - it is to find efficiencies that may otherwise not be as easy to identify. An example is that if your CAC Payback Period is significantly better than your cohort - it may suggest it's time to accelerate investment in customer acquisition.
What are some of the key "operating benchmarks" that can be used, and how to be confident in the appropriateness of how the benchmarks align with your company's specific attributes? Lauren highlighted that first it takes time working with consistent metrics with consistent definitions across companies. Having a third party who has a specialty in collecting, normalizing, and standardizing the data (benchmarks) collected and ensures a common definition, thus calculation of each metric is a critical component to the ultimate value of benchmarks.
The CFO and finance organization is typically the primary "version of the truth" for internal metrics and thus the primary user of external benchmarks. One of the values of using benchmarks is to counter "legacy knowledge" of certain metrics which has evolved. An example here was the decrease in General and Administrative (G&A) expenses as a percentage of revenue over the last few years.
One great best practice on using benchmarks was when a company CFO sends the annual budget to the board of directors. Along with the budget, he would include the benchmarks for how similar companies benchmark on expense allocation between each department. This provides "context" for the budget and leads to much easier board approval on the budget, and leaves more time for more strategic discussions during the board meeting.
Lauren is a true pioneer in benchmarking for the B2B Cloud industry and is a great listen for any finance or operating leader who is looking to enhance how they make better metrics informed, benchmark validated decisions.