Chapter 1.4 Compare your business performance against industry benchmarks
Background information
To accurately determine the financial health of your business is beyond the scope of this manual. However, readily available industry benchmarks provide a point of reference to indicate how your business is performing compared to others in the industry. These benchmarks allow you to do one or all of the following:
- Quickly check your business health.
- Identify opportunities for further improvement in your business (benchmark comparison).
- Monitor the progress of your business over time (multi-year benchmark comparison).
At a glance
- Know how your business is performing against industry benchmarks.
- Undertake annual monitoring to be able to effectively update your short, medium and long-term objectives using results from the previous year.
Benchmarking in the sheep industry
Benchmarking can either be:
- indirect — where sheep producers calculate their own performance indicators and compare them against published industry benchmarks; or
- direct — where sheep producers contribute their farm information into a service that generates the benchmarks for comparison with other sheep producers.
Indirect benchmarking
Indirect benchmarking is a great place to start your benchmarking journey. The best athletes monitor their performance in detail before competing in bigger events against others, and you can employ the same tactics for your business with benchmarking. Indirect benchmarking is the first step.
To determine which benchmarks will be relevant to your business, start with the primary benchmarks in Tool 1.10. At the whole-farm or business level these will tell you how healthy your business is. At the enterprise level they will identify those areas of the business with the greatest opportunity for improvement.
Once the overall health of the business is determined and opportunities for improvement identified in individual enterprises, secondary enterprise benchmarks (Tool 1.10) can be applied selectively as a guide to make specific changes and monitor progress. Guides to performance are not provided here because these will differ considerably depending on location, sheep enterprise, genetics used, farm enterprise mix and many other variables. These benchmarks are best tracked internally to improve specific areas of enterprise performance.
For indirect benchmarking, cost of production ($/kg of meat or wool produced for sale) can be a useful benchmark as it integrates many aspects of the business. If you don’t know your cost of production per kilogram of lamb or wool, see Chapter 1.3 and use one of the cost of production calculators.
Direct benchmarking services
Both public and private service providers carry out direct benchmarking. These services are worthwhile because they:
- Calculate more complex benchmarks.
- Provide a consistent methodology between years.
- Cover financial and physical aspects of the whole business or sheep enterprise.
- Provide direct comparisons to other businesses, highlighting opportunities.
- Often provide professional services to help interpret the information generated and identify the best course of action.
Benchmarking services are available in all states, either through farm management consultants or accountants, or through larger service providers (see signposts).
Monitoring and reporting
All businesses undertake some level of monitoring and reporting. Some of it is legally enforceable, such as the reporting associated with the Australian Tax Office (ATO), Workplace Health and Safety (WH&S) and stock sales. In addition, some markets require a level of reporting, such as wool sales by description. However, this compulsory monitoring and reporting is seldom sufficient to be accepted as whole of business reporting.
Best practice requires some level of reporting of progress against the objectives that have been set for the business, at least annually (see Chapter 1.1). In the corporate world, annual reports are compulsory and must come with an independent audit by a qualified accounting firm. This is rarely an appropriate approach for small businesses, where tax returns are often the only ‘annual report’. However, these give no indication of progress towards objectives and are usually structured to minimise tax rather than provide a useful summary of the financial health of the business.
The extent of reporting is a personal and business choice, but minimum best practice is to document progress against objectives and to update short-, medium- and long-term objectives in the light of the past year.
SIGNPOSTS
A ‘how to’ video explaining the whole farm KPI calculator and key financial data required to give you an overview of your business performance to identify areas of success and areas of improvement to help you make fact-based decisions.
Production and financial outcomes of beef and lamb producers in a 2021 benchmarking dataset and key metrics for you to consider in your livestock business.
Analysis of farm costs, receipts, income, profit, rates of return, performance by state and performance by industry.
Recent droughts across Australia have demonstrated the dramatic effects that climate variability can have on farm businesses and households. Here ABARES provides some insight into these issues by examining the effects of recent climate variability on Australian farms.
Provides insights into the performance of Australian sheepmeat farms and their productivity in comparison to their global counterparts.
Detailed benchmarks for Victorian sheep producers with insights applicable to many other regions.
There is no single way to manage production risk. Many ‘levers’ influence the ultimate risk profile of a business. To manage risk effectively we need to understand both the downside, or the potential harm from taking a risk and also the opportunities that taking a risk can offer.
A producer case study demonstrating the benefits of comparing production and profitability data in benchmarking groups.
NSW Central West, NSW South West Slopes, Northern Victoria, Southern Victoria, Tasmania, SA Mallee and upper Eyre Peninsula, SA Mid North and lower Eyre Peninsula, WA low rainfall, WA medium rainfall,
The whole farm key performance indicator (KPI) calculator uses key financial data to give you an overview of how well your business is performing. The benefit of analysing your business in this way is to identify areas of success and areas of improvement to help you make fact-based decisions.
Search to find accredited member consultants and advisors in agriculture and natural resource management.
Search to find member consultants and advisors in WA.
Connecting producers to agricultural businesses and services across Australia.
A group of independent consultants who provide services to the livestock industry across South Australia and interstate.
A national program for young people in all facets of the wool industry which develops their leadership and professional skills.
