A couple weeks ago, we shared a preview of our Q1 Benchmark Report, with specific data on how 7 to 9 figure private DTC brands performed.
If you missed that, you can read it here.
Full report will be published in the next couple weeks.
But in talking to a few of you, I’m realizing a need to explain how to actually use this data and contextualize for your business.
Not just our report, but ANY report and how to think about benchmarking broadly.
It ain’t a given.
The charts don’t create clarity. You do. But to do that, you need to understand:
- Who to benchmark against
- What to benchmark
- When
Who To Benchmark Against
Every ecom company is already benchmarking against something – conscious or not.
DTC Twitter, their friend’s company, a past self, something their marketing agency said, etc.
Most of this isn’t good for our paranoia and mental health, but we do it anyway.
We’re people.
From my perspective, ecommerce companies should benchmark across these three sources, listed IN ORDER OF PRIORITY:
- Your Past Performance: Compare yourself to who you were yesterday, not someone’s tomorrow
- Other Private Peers: An ideal benchmark, but typically, the data is scattered among podcast interviews or kept under wraps (what we’re trying to change)
- Public Companies: Even if you never plan to be publicly-traded company, there’s a lot you can learn from their SEC filings as you plan for growth
#1 is the priority by a mile.
A good set of investor-ready financials helps with that. Our reports (and others like Taylor Holiday) help with No.’s 2 & 3.
For #2, it’s not just about comparing yourself to other private brands. Ideally, you’d compare to brands that are at your size and in your vertical.
Close to apples to apples as possible.
Not only does this help you set goals, but it can also relieve anxiety by showing when you’re doing well.
For example, one client was pursuing 25% EBITDA, and felt like he was failing every time he didn’t hit it. But his brand was already out-performing 95% of others his size.
Once he saw our benchmark data, he said, “I didn’t realize we were at the top of the class.”
Instant priority shift that freed him to invest in other areas of the business.
That’s why you benchmark.
In the future, we’d like to continue adding companies to our sample set so that we can show trends by industry too.
But for now, you’ll see we break each metric out by company size, then show best, average, and worst performance.
What To Benchmark
It’s easy to talk about P&L metrics – revenue, gross margin, contribution margin, EBITDA, etc.
But the real mistakes I see are in the Definition of the metrics, the Dimension of the metrics, and the Data Literacy of the person viewing the metrics.
Ah yes, 3 big Ds.
1. Definition: What goes into a metric?
Companies define metrics differently (contribution margin’s a good example). If you don’t know, you can set wildly unrealistic goals for yourself.
Like I’ve said, apples-to-apples.
In our report, we include a “Methods” chapter that describes exactly how we calculate key metrics. No matter where you’re finding benchmark data, ask yourself if they define things the same way you do.
You may need to translate.
2. Dimension
Even if you’re calculating metrics the same way, ensure they have the same dimension
Time usually being the most important.
Profit benchmarks for a full year will be very different from profit benchmarks for Q1.
And benchmarks from 2024 will look different than our annual report, which uses a trailing 12-month average (Dec. ‘23 through Nov. ‘24).
3. Data Literacy: What is the data telling you to do?
Our industry generally shits on MBAs, but one lesson I learned was how to setup and understand charts and graphs.
So if you’re not data literate, let my $150,000 waste of two years investment work for you.
It doesn’t come naturally, and a good tailwind can cover up a lack of data literacy on your exec team… until it can’t.
Take customer lifetime value as an example.
Wildly different definitions from company to company. Varying time dimensions. High data literacy required.
I spoke to an 8 figure company last week who had trouble reading this chart (may do an entire newsletter on this) and understand how this is an input to CLV.
Spending half a day learning this and what it means is 10x more important than learning the next AI tool.
Finally, When To Benchmark
There are both obvious and non-obvious aspects to this question.
The obvious question is, “When should we benchmark,” and my answer is…
- Against other companies at least once a year when setting your budget
- Against your own past performance monthly or at least quarterly to determine progress
On the less obvious side – it’s important to remember that whether you benchmark or not, others will benchmark you:
- Banks will do it when when you apply for a line of credit
- Investors will do it when you ask them for money
- Acquirers will do it when you exit
Benchmark is just a fancy term for “compare,” and we as humans are nothing if not powerful comparison machines.
Don’t let the first time you do this be during the most important transactions of your business.
If you want help getting started, I always keep time open for readers. You can grab a spot on my calendar below.
