It’s all very well knowing that turnover is vanity and profit is sanity (and of course, that Cash is King), but how do you evaluate whether the profit that you are successfully making – assuming that you are breaking even and making that holy grail of profit on a monthly basis – is as much as you should be making. How do you know if your prices are too low (or too high)? What should your profit margins be across the year – and if your community business is in retail, when should you be making your best profit?
This is where benchmarking can help you.
MyCake are benchmarking specialists, and when you sign up for one of our programmes, then you get access to the datasets that will let you know whether the rent that you’re charging for your community space is realistic, or really low; whether your income streams from trading income is the highest in your sector; or whether your pension contributions really are the best in the (community) business.
Benchmarking allows you to look and see what other organisations in your grouping, whether they are arts organisations, community sports halls or community shops are earning and spending, based on the lowest, largest, and average for your group.
Let’s look at a couple of examples.
Expenditure on travel is certainly an area which can get out of hand without noticing it. It’s particularly likely that travel costs will go up when you’re pitching for work or researching new clients. This could be a seasonal activity e.g. museum shops developing their offering for Christmas or a Community run Swimming pool planning for the summer. So in this sense look at your travel costs across a year and know the annual cycles.
In one of our datasets, the average spend on travel is 8% of turnover., where the maximum in comparison was a whopping 40%. Even the average of 8% is a little high -we’d suggest aiming for around 5% to be more sustainable.
Marketing – Again marketing may be a seasonal activity in your business so look at your marketing spend across all four quarters not just one.
In the same period, we noticed that the average spend on marketing was 12% of turnover with the maximum was 33% of turnover.
Marketing is a hard one to look at in the abstract in that a ‘reasonable’ marketing spend very much depends on what your goals
are. For example, are you looking at pushing a new activity or service? In that case, your marketing spend will generally be – in fact should be – higher than the sales levels might justify.
If marketing spend is rising but not in line with your plans for the business, then have a look into it. Social media marketing costs can ramp up alarmingly if you don’t keep an eye on them, and it’s important for all marketing spend to be tied as much as possible to the activity that it is used for. That said, there is a truism that only 50% of marketing spend is only useful – it’s just that you don’t know which 50%!
Use the benchmarking data that you have through MyCake to help you analyse your spend and also plan for your next business quarter or year. If you’d like some help, just drop us a note at firstname.lastname@example.org, and we’ll focus some time on this blog on your benchmarking questions.