How Do You Gain A Competitive Advantage?

Everyone wants to know how they’re doing. As a small business owner, this is critical to your survival. Because franchises often operate on tighter margins, knowing where to pull back on certain expenses (for example, marketing) or where to negotiate harder (for example, leasing property) or where to invest (buying new equipment) matters. If you’re not comparing yourself against your peers, you’re flying blind. And that might mean you’re making mistakes.

Here are three ways to compare your franchise against your peers, and why they matter.

Revenue.

How much money are you making versus “Company B”? Before you start your research make sure you take an apples-to-apples approach. Choose a competitor that’s in your field, within your geographic location (or similar), with the same years in business and of a similar size. Then compare your revenue.

What do differences in revenue tell you? For starters, don’t assume that if they have higher revenue that’s automatically bad. They might be overestimating their revenue, or not spending enough on things that will work against them (equipment, marketing, etc.). But it’s definitely something to look at.

COGS (cost of goods sold) as a percentage of revenue.

Cost of goods sold is how much money it costs you (equipment, staffing, supplies) to create and sell your products and services to your customers.

If your revenue is $10,000 a month and your COGS is $5,000, that means your COGS as a percentage of revenue is 50% (it costs you half of what you take in to sell your services).

What does your COGS as a percentage of revenue tell you? If your rate is higher than your competitor’s rate, you might be at a disadvantage—for some reason, you are spending more to deliver your services. Perhaps your competitor is simply charging more—that’s an easy fix for you. Or, perhaps you’re paying too much for equipment and supplies. Regardless, this gives you an opportunity to examine how you’re running your business and where you need to make changes.

Expenses as a percentage of revenue.

This one is a no-brainer. If you are spending more than your competitor and getting the same revenue, your rate of expenses to revenue will be higher. Similar to comparing COGS to revenue, this is also an opportunity to examine where you’re spending money, and where you might want to negotiate or cut back (for example, you might be spending more on payroll).