Cost benchmarking: is your business expensive to run?

Key takeaways

Cost benchmarking for a small business means comparing your costs with a reference point to see whether you are expensive to run. Reliable external data for small firms is scarce, so the most useful benchmarks are your own history, a real market quote and public wage data. Compare unit costs, such as cost per order, not totals.

• 3 benchmarks that work: your own trend, a market quote, public wage data.
• Compare unit costs, not total budgets.
• A quote for the same scope is the most honest benchmark.
• Be wary of industry averages with no stated source.

What is cost benchmarking?

Cost benchmarking is the practice of comparing the cost of an activity with a standard, such as past performance, another business or a market price, to judge whether it is higher than it should be. It turns a figure into a judgement. £3.46 per invoice means nothing until it is set beside something.

• How BPO can help businesses reduce operational costs
• Operating expense ratio: how to calculate and read yours

Why are industry averages unreliable?

Industry averages are unreliable for small businesses because they are often drawn from large companies, from surveys with few respondents, or from sources that cannot be traced. Definitions differ too. One firm's operating cost includes directors' pay and another's does not. An average you cannot trace is an anecdote with a decimal point.

• Cost-cutting mistakes that end up costing a business more

What can you benchmark against?

Benchmark against three things you can verify. Your own history shows direction. A market quote shows what the same work costs if bought. Public wage data shows whether you are paying a sensible rate for the role.

• Your own trend: cost per task over the last three years.
• A market quote: a provider's price for the same written scope.
• Public wage data: ONS earnings figures by occupation and region.

• Cost baseline: measure today's cost before you change it
• How to compare outsourcing quotes like for like

What does a worked benchmark look like?

Take an illustrative firm whose order admin costs £4.10 per order. Three years ago it was £3.20, so cost per order has risen 28% while volume grew. A provider quotes the same scope at a price equal to £2.60 per order. The role doing the work is paid in line with the ONS figure for that occupation.

The conclusion is specific. Pay is not the issue. The process has become less efficient as it grew, and the market can do it for about 37% less. That is a far more useful finding than being above or below an industry average.

• Own trend: £3.20 to £4.10 per order, up 28%.
• Market quote: £2.60 per order, about 37% lower.
• Wage check: in line with published earnings data.

• Work out your cost per task before you outsource
• The cost lever scorecard: find savings process by process

Where can you find UK wage and cost data?

The Office for National Statistics publishes the Annual Survey of Hours and Earnings, which gives pay by occupation, and Table 14 breaks it down by detailed job type. GOV.UK publishes National Minimum Wage rates and employer National Insurance thresholds. For outsourced work, indicative market ranges are £9–£18 per hour offshore and £20–£35 onshore.

• BPO cost per hour in the UK
• The true cost of an employee in the UK

How do you keep comparisons fair?

Keep comparisons fair by matching scope, quality and what is included. A quote that excludes supervision is not comparable with an in-house cost that includes it. A cheaper process with twice the error rate is not cheaper. Write down the scope before you compare anything.

• Same tasks and volumes.
• Same hours of cover.
• Same quality standard.
• Same inclusions: supervision, tools, holiday cover.

• Cost-effective or just cheap? How to judge outsourcing value
• The hidden costs of outsourcing

What does this look like in practice?

A pattern we see when owners look for benchmarks: they search for an industry figure, find three that disagree, and give up. Getting one written quote for a clearly described process settles the question in a week, and it is a number someone is prepared to stand behind.

• See client work
• BPO Solutions for UK businesses

Cost benchmarking checklist

Use these steps for each process you benchmark.

• Calculate current cost per task.
• Calculate it for the last two or three years.
• Write a one-page scope.
• Get one or two quotes against that scope.
• Check pay against ONS data for the role.
• Compare like for like on quality and inclusions.

• How to benchmark in-house team performance
• Cost reduction KPIs: the numbers that prove savings are real

Next step

Send us a short description of one process and its monthly volume. We will tell you what the market range looks like for that scope, so you have a benchmark you can trust.