The road to farm success is paved with good benchmarking
Working in tandem with key performance indicators, benchmarking can help you control costs, bolster productivity and find a competitive edge
One of my ag clients began benchmarking as a strategic tool a few years ago, focusing on key indicators that were both internal (comparing self to self over different time periods) and external (versus peers).
Little by little, performance improved, costs decreased and operations were streamlined. Pennies turned into dollars and, since the implementation of benchmarking, the client has improved profitability by two times.
This is just one example of the many farmers and livestock producers who have used benchmarking to control costs, bolster productivity and find a competitive edge. If you’ve wondered what benchmarking is or whether you should try it, the questions and answers below might provide some insight.
1. What is benchmarking?
It’s a process of quantifying, measuring and assessing your businesses processes or performance, whether it’s profitability, expenses, yields or employee retention. Benchmarking identifies an area of your business and compares it against an appropriate standard. The standard can mean comparing your business to the best practices or standards of similar operations or competitors, or you can also benchmark against yourself in the areas where you’d like to improve.
2. Why is benchmarking important?
My simple answer: If you can’t measure it, you can’t manage it. Benchmarking takes hard-to-manage information and puts it into a numerical form that lets you see how you perform against your own standards, historical performance and goals. It reveals your own strengths and weaknesses while providing the data to let you know where you stand. As a result, you’re better informed for decision-making and action and have the feedback mechanism in place to know if your decisions are effective.
3. Who needs benchmarking?
Some level of benchmarking is applicable to everyone, no matter the size or business type. Everybody should be trying to improve their business.
4. What are the most popular areas to benchmark?
Benchmarking runs the gamut of business processes and performance, but common agricultural topics include:
• Financial information;
• Debt service;
• Yields or revenues per acre;
• Cost per acre, especially regarding chemicals, fertilizers and seed;
• Employee costs;
• Employee turnover; and
• Environmental metrics such as water usage.
Where or how do you start? What programs or tools do you need?
There are many sophisticated data tools, software and programs out there that can help you capture numbers and comparisons. But I suggest you start simple. Focus on a goal. For example, maybe you want to know how to improve fertilizer use on your dryland corn. Or you want to truly understand the profit driver in your business. Is it increasing pounds or yields? Is it numbers of employees per volume, time period or location? You may want to zero in on five areas where you want to see growth and development.
You will learn as you go. But you’ll need a good system of controls on your accounting functions so items get recorded the same way every time. And you’ll need someone to guide you through the process of identifying your goals as well as creating key performance indicators, known as KPIs. You’ll also need someone to interpret the numbers in a way that’s helpful to you. An expert can help you figure out what those KPIs are telling you so you can put that information to good use.
Farm data is different from region to region. What’s standard in the Midwest isn’t likely to compare with Texas. It’s valuable to work with someone familiar with regional industry data and standards.
1. What are KPIs?
Some people refer to KPIs as scorecards. They’re tools or metrics that evaluate the activity you’re seeking to improve. KPIs help you track key results so you can understand and measure the performance and health of your ag business. With that information, you can adjust your operation to achieve your goals. Further, KPIs can help you predict future outcomes and analyze patterns over time.
2. How often should I benchmark?
Benchmarking isn’t a once-and-done process. Since the aim is improving a process or business performance, benchmarking should be continuous.
Editor’s note: Maxson Irsik, a certified public accountant, advises owners of professionally managed agribusinesses and family-owned ranches on ways to achieve their goals. Whether an owner’s goal is to expand and grow the business, discover and leverage core competencies, or protect the current owners’ legacy through careful structuring and estate planning, Max applies his experience working on and running his own family’s farm to find innovative ways to make it a reality. Contact him at [email protected]
