Benchmarking: Insights to get ahead of the curve

Benchmarking is more than a means of comparison – it’s about turning farm data into meaningful information. Information that can help you assess financial performance, productivity across enterprises, and areas for improvement. And more importantly, the insights to help move beyond reactionary decisions toward more proactive, strategic changes to help keep your business ahead of the curve.

In this thought leadership piece, we draw on the insights of John Francis from Agrista, who has spent more than 30 years helping top operators measure and interpret their farm business performance.

While benchmarking isn’t the be-all and end-all, John says it can clarify the strengths of your business, highlight opportunities and bring accountability – by looking “over the fence” and asking: is that applicable to my business?  

John also stresses the importance of starting with clear goals – understanding why you are measuring and benchmarking your data, to ensure you capture what really matters to you and your business.

When benchmarking farm financial performance, John says the use of management accounts – those used for business decision-making (not those generated by your accountant for tax purposes) – can help identify the ‘real’ picture by using market-based values for land, livestock, depreciation etc.

And while you can analyse a number of financial and Key Performance Indicators (KPIs), one of the key measures John tracks is operating return – also known as return on assets managed – i.e. operating profit/asset value.

“You can then use that to compare yourself against any number of businesses, like the laundromat or a motel – you name it. It is a very powerful ratio,” John says.

In terms of farm productivity performance, John says there are also many measures for different enterprise types that you can benchmark such as profit per hectare, cost of production per kilogram/liveweight and labour efficiency. But it is how you interpret the data, that is key.

John likens the benchmarking process to a pyramid, a concept he attributes to systems thinker, Russell Ackoff.

Base: Here you have the raw data e.g. annual rainfall, livestock numbers, cropping areas, livestock sales and yields.

“If you only play in that data space it is a confusing place. Why? That is where you have your raw records that are often unprocessed and unorganised.”

Middle: The processing of data into meaningful information to generate margins, ratios and KPIs. Information is now more organised, structured and contextualised.

“This is where farm benchmarking comes in, turning raw data into something useful.”

Top: The interpretation of information to build knowledge. This is where you are adapting systems, identifying opportunities and running scenario analysis.

And right at the tip of the pyramid, it is using insight gained from your analysis to adjust management systems and implement changes.

“This is where the real value lies.”

John says the pyramid structure not only helps clarify how you can turn data into information, but it also helps with the decision-making process. Staying at the base generally leads to more reactionary decisions, but as you move towards the top of the pyramid – where you are processing and testing your information – you can be more anticipatory to stay ahead of the game.

Finally, John stresses the importance of  analysing the numbers when benchmarking your business. “Spend five times more time analysing the outputs than inputting data,” he says. The value isn’t in the data entry, but rather in the data interpretation – the year-on-year comparisons, the insights, the action and most importantly, the implementation.

“Benchmarking has had a hugely positive effect on our business. Our financial performance and productivity measures have increased significantly. It cuts to the core of what drives out business and eliminates a lot of the noise,” Stuart Tait, mixed farmer, New South Wales.

The impact on his business:

• Benchmarking isn’t just about the numbers; it’s about making better business decisions.
• Internal benchmarking as a way to compare your own enterprises (e.g. cropping vs cattle or year-on-year performance) to lift performance.
• Peer comparison to learn what the top 20% are doing and how to modify in your own business.  
• Highlights the lowest-hanging fruit: the easiest changes to lift performance.
• Drives a business mindset to run the business as a business and strive for an acceptable return on investment.
• Get comfortable with being uncomfortable: taking measured risks, looking at the business as a system and fine-tuning it.