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Benchmark for Success

Top-performing companies benchmark. It’s one of the secrets to achieving top performance! Comparing your company to others in the industry allows you to push your company to peak efficiencies. In our industry, there are many sources of data:

1) CashTracker® – Meridian’s favorite source (of course). We load into this software wholesale petroleum, c-store, retail gas station, propane and heating fuel data. Using a profile screen where you input the percentage of business you conduct in each industry, your company is then only compared to companies like yours in profile, total asset and sales size. To order, call us at 800-728-9005.

2) PMAA Year-End Financial Review – Meridian has compiled and prepared this study for PMAA.  To order, call PMAA at 703-351-8000.

3) NACS State of the Industry Report – Segregated by number of stores per chain, this report contains valuable benchmarking information for anyone in the c-store industry. To obtain a copy, call NACS at 703-684-3600.

4) Trade Supplier Data – Many major refiners keep financial data on their customers, although not all compile statistics and report that data. If you are not getting benchmarking data from your major refiner, ask if it’s available.

4) Commissioned Studies – Accounting firms, state associations, private study groups, and even some industry mortgage lenders receive and compile industry data.

With this much benchmarking data readily available to you, how do you know which numbers best apply to you and your business?

First, examine the profile of companies within the report. Are they similar enough to your business profile and size that the numbers would be comparable? This question is vitally important for any privately commissioned study.

Next, good benchmark data should be derived through medians, not simple averages. For example, let’s say I want to determine an average fuel margin and have the following cents-per -gallon gross margin data from ten sites:

10.23        8.56

8.21        8.98

9.42      25.34

9.67        8.45

8.89        9.12

For an average, we would add up all the fuel margins and divide that total by ten. The result is an average margin of 10.69. A median, however, finds the point at which half the values fall above and half below. Using a quick Excel formula, we find the median for this data is 9.05.

As is easily revealed by this example, averages should not be used in benchmarking because very high or low numbers skew the study results. This happened in our example because one site had an abnormally high 25.34 cent fuel margin.

Assuming that the study you are benchmarking to is based on medians, your next check point should be gross profit margin. Compare your numbers to the study data.

If your margin is significantly different from the benchmark, determine why. The two most probable explanations are:

1) Your company’s sales mix (profile) is very different from those companies in the study.

2) The degree of competition in your area is different from the overall study sample (can be more or less).

If your profile is significantly different, do not rely on the benchmarking data as a management guideline for your company. If the profile is similar, but it’s just the degree of competition that is causing your margins to be significantly different from the industry, use the data with adjustments for your unique margin.

If your margins are better than the benchmark, you should be thankful for your blessings and still try to hit the expense benchmarks. If your margin is much lower than the benchmark, however, adjust the benchmark expense data. For example, your margin is 10.5 cents, but the benchmark margin is 14 cents. Your margin is only 75% of the benchmark. To obtain expenses that are appropriate to your margin situation, you must multiply each expense by 0.75.

For instance, if the benchmark wage expense is 8 cents per gallon, your adjusted benchmark would be only 6 cents per gallon. Notice that we are using cents-per-gallon data. Because of the volatility of fuel prices, per-gallon data is the most accurate way to benchmark, not percentage of sales.

What do you do with your findings? Use them to improve your company! Unfortunately, human tendency is to justify why our existing situation is the way it is, rather than acknowledge any weakness in our business. Dismissing any poor benchmarking results will make the entire process a total waste of time. You don’t benchmark to pat yourself on the back. You benchmark to uncover inefficiencies and waste in your company, enabling you and your staff to go to work on these problem areas.

Your ultimate goal is to cure any inefficiencies and thereby become more profitable! Ideally, your goal is to see your company in the top-performing statistics for every benchmark, not just the industry average!

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