Benchmarking and Business Analysis
The difference between cost of production and price received is profit. Therefore, to target business improvement we need to know both accurately.
Olympians do not focus on coming in the middle of the field, they focus on being the best. Sport is the most benchmarked industry in the world and success can be measured in millimetres or thousandths of a second.
If you want to be an Olympian in agriculture, it pays to benchmark yourself against the winners.
We need to know what the performance is of the top 20% in the industry, in terms of their return on assets, their turnover ratio, their overhead ratio, their cost of production, their price received, their expense ratio, their gross margins, their cost structures etc. relative to our own business. This information guides our focus on business improvement.
Lay your business bare. Accounts done for taxation purposes DO NOT TELL US ANYTHING about our business or how to improve it. The RCS business analysis and benchmarking tool, ProfitProbe™, uses sophisticated management accounting processes to expose all the strengths and issues within a business. That information can then be used to target two to three areas each year which will improve business performance.
Combined with skilled interpretation of the indicators provided, benchmarking your business will:
- Focus management on increasing profits
- Target where cost may be cut whilst increasing production
- Improve efficiency across your business and production system
- Allow you to make management decisions with confidence
- Keep your financial position in perspective
This example from a business illustrates the change that can be made in one year by knowing where to focus after completing ProfitProbe™.
Using the meaningful information from ProfitProbe™, this business made professional management decisions to change the aspects most limiting profit – which are quite often different to the ones we feel we should focus on. The result was they decreased their cost of production and increased return on assets by 3.6% in a poorer year.
|Year 1||Year 2|
|Large stock units managed||1,720||1,757|
|Stocking Rate - stock days per hectare/100mm||11||24|
|Turn over (Annual turn over)||8.10%||11.70%|
|Gross margin Ratio||74%||81%|
|Return on assets||2.2||5.8|