Benchmarking Your Business Against Industry Averages

How To Easily Find Industry Benchmarks (For Free)

Often company executives, accounting professionals, consultants and other business leaders are tasked with finding external financial data with which to measure company performance – benchmarking. Ideally, this benchmark data will be sector-specific.

Without relying on intuition or tarot-readers, companies regularly resort to hiring expensive research firms or buying subscriptions to cumbersome market analysis tools; but there is a free database with comprehensive industry statistics from companies in the US that is updated annually.


The Problem With Using Purchased Data

Even the most respected contract research organizations and purchasable reports only provide survey results. These surveys tend to have a small representative sample. With low response rates being one of the top challenges for researchers, landing 100-500 survey participants is considered a “good” sample. To get this level of participation takes time; and many firms may incentivize participation, which can skew results.

False respondents, limited response scales and interviewer subversion/distortion aside, the biggest issues concerning validity and reliability of survey results come from inaccurate responses. There are many factors that can influence survey answer reliability/validity from the respondent, including:

  • Subject bias
  • Differences in interviewers and interviewees interpretations, inferences, and connotations
  • Social desirability (spinning or falsifying responses to look good or providing an answer instead of saying “I don’t know”)
  • Recall fallibility/Inability to consult records

If Family Feud has taught me anything, it’s that when “we asked 100 Americans” something, someone’s answer will inevitably make Steve Harvey’s mustache twinge.

There are also a few sources of data for purchase online that pull statistical finance data without the inconsistency of survey data.

Additionally, both research firms and online industry analysis resources can take significant time/money investments to provide the benchmark data you need.


And Then There’s Free Data

If you happen to play in a commonly targeted or scrutinized industry like retail/wholesale, manufacturing, healthcare, government or education, you might get lucky and find a report or two online with benchmarking numbers that appear to be what you’re looking for. It’s important to note that, in addition to the shortcomings listed above, these reports are usually underwritten by a corporation with an agenda that can motivate biased results (whether surveys or data analysis).

Although financial statistics can easily be obtained online for specific companies; these profiles are generally for publicly traded firms, which can be valuable to a point. Unfortunately, calculating industry averages from this data would be extremely time-consuming and produce distorted results (a “peer benchmark” as opposed to industry average). Most mid-sized private companies would be hesitant to benchmark financials against public companies.


Don’t Get Me Wrong

All of the above resources can be extremely valuable for benchmarking. It’s important, however, to get a holistic view and to not rely on any single source.


Perhaps the Greatest Single Source of Free Financial Data

There is an organization that collects detailed financial information for virtually every US company. This organization deals directly with more Americans than any public or private institution in the world. This organization has a system of safeguards in place to maintain and enhance data accuracy. And this organization compiles and publishes troves of this data online, allowing you to drill down by sector or industry, location – all for free.

Wow, this organization must be one of the most loved institutions of all time!

This organization is The IRS. So, I guess it’s not technically free, but everyone can access its deep database and download without registering or providing payment information. Being a government site, it’s not exactly easy to navigate, but here is a good place to start:

By doing some simple math with tax stats from about 6 million active corporations, it’s fairly simple to get an industry average for anything on an income statement or balance sheet. For example, scrolling down to the “Minor Industry” section and clicking “Returns” gives you the ability to calculate the average Cost of Goods Sold (COGS) for Clothing and Accessories Stores to be $1.963M by dividing COGS of $101,744,741,000 (column 6) by the number of returns, 51829 (column 1)… or COGS as 52.8% of Revenue (column 6 / column 5).



For another, slightly more complex, example of how to use these free .csv files, check out our blog about using IRS Data for Accounts Payable Benchmarking


Friday, September 12, 2014 5:37:00 PM Categories: Benchmarking