Benchmarking is a great way to determine how well your business is performing, but it’s how you interpret the numbers that matters.
Speaking at the BakerAg Winter Seminar, of which Cashmanager RURAL was a sponsor, BakerAg’s Sully Alsop said benchmarking had become a buzz word in the industry, but benchmarking alone is hopeless – it’s what you do with the numbers that counts.
“It’s what you do with the numbers and how you interpret them that matters…benchmarking allows you to evaluate, plan and implement.”
Alsop explained that benchmarking alone doesn’t run a business, strategic planning and the overarching goals you set have to come first.
You need to determine what you want your business to do for you and what level it needs to perform at to meet your goals.
“It’s not always financial goals, they can be lifestyle goals, for example, I want a business that allows me to go on holiday with my family every year.
“Not every goal is cash-related, but most goals get easier with more cash. There also needs to be a conversation around debt levels – where are you comfortable?”
Evaluation can focus your attention in the right areas – evaluate and look at what areas you’re doing a good job in and what areas have room for improvement.
It’s important to look at the overall picture. “You can’t just look at one metric, farms are big jigsaw puzzles.”
Planning involves building a physical plan of what will happen on farm – production levels, feed demands and inputs, like fertiliser.
Implement means going away and implementing that plan on-farm. It is important to then review the plan and evaluate what worked and what didn’t work.
By doing this, you will have a continuous cycle of improvement, much like the Cashmanager RURAL plan, do, review cycle.
Identify Key Performance Indicators (KPIs) for your business, these could be a mix of financial and production KPIs.
Alsop outlined nine KPIs identified by the Red Meat Profit Partnership (RMPP) that it would like to see standardised:
- Gross Farm Revenue (GFR)
- Farm Working Expenditure Ratio
- Earnings Before Interest Tax Rents (EBITR)
- Economic Farm Surplus (EFS)
- Reproduction rate
- Live weight gain
- Feed conversion efficiency
- Pasture utilisation
The reports in Cashmanager RURAL can help you identify many of these KPIs and undertake benchmarking in your business.
But the numbers alone are not smart – it’s analysing the numbers to identify things like: What trends are you seeing? What are higher performing farmers doing compared to you? What are you doing well? What are you not doing so well? Take those learnings and use them to improve your business.
KEY TAKE HOME MESSAGES:
- Benchmarking is not a fad, it’s a genuine tool
- The numbers are not clever, how you use the numbers is clever
- The more information you gather, the better
The right metrics?
Massey University’s James Lockhart also spoke about benchmarking at the seminar, saying the focus on EFS had become an obsession and the cost of ownership had been neglected in the benchmarking process.
He suggested a new metric for dairy farming, produced by calculating kilograms of milk solids produced/$1000 of capital required.
Lockhart says benchmarking is useful, but questioned if we were benchmarking the right metrics. He says cost of ownership and learning should be taken into consideration, as well as benchmarking against global competition.