Budgeting, Planning, and Benchmarking
During annual budgeting and planning, executives gather in conference rooms to defend last year’s baseline, avoid Finance’s cuts, and argue over priorities. Too often, the result reflects politics not performance.
Integrating benchmarking into this process offers a way out of that cycle. In the budgeting context, benchmarking means anchoring decisions in relevant external reference points including competitor spending patterns, functional ratios, or performance benchmarks that reveal how others allocate scarce resources. Instead of treating budgets as internal horse-trading, benchmarking reframes them as strategic calibrations.
Imagine a technology firm deciding whether to expand its customer success team. One VP insists the group is already “too big,” while another claims it is “understaffed compared to his last employer”. With benchmarking, the debate shifts from opinion to data: if best-in-class SaaS peers staff one customer success manager for every $1.2 million in revenue, while the firm operates at one per $2 million, the gap is easy to see. Leaders can still choose to be different, but now they are making data-backed strategic decisions.
This is the essence of effective benchmarking in budgeting: it introduces discipline, creates external context, and pushes leaders to challenge assumptions rather than defend entrenched & cultural positions.
The practice, however, demands rigor. Three elements matter most:
- Comparative Data with Integrity: The best benchmarking draws from multiple sources including public filings, analyst reports, job postings, and primary research, all woven together to create a reliable picture. One dataset is rarely enough.
- Well-Chosen Peer Groups. Benchmarks only work if peers are truly comparable. A consumer SaaS firm should not model its spending against a capital-intensive semiconductor manufacturer just because they both fall inside of the “Technology” sector.
- Thoughtful Interpretation: Numbers do not speak for themselves. Ratios must be normalized for geography, maturity, and strategy. A European services company’s cost base, for example, looks very different from a U.S. product-led software firm, even if revenues & headcount match.
In practice, benchmarking makes budgets more than a financial exercise. It turns them into a strategic alignment mechanism. Budgeting and planning templates should evolve to include external references. Business cases should cite peer ranges. FP&A models compare not just to last year, but to industry medians and quartiles. Conversations begin with evidence not instinct.
Why should you care about benchmarking during your budgeting process?
Leaders are expected to show not just what they plan to spend, but why that spending is the best use of scarce capital. Benchmarking is what turns that “why” from opinion into evidence.
The core value of benchmarking are:
- Higher Return on Capital: Spending shifts toward areas with proven leverage, backed by data rather than instinct.
- More Efficient Functions: Ratios highlight where processes lag behind peers and where reinvestment could close gaps.
- Credibility with Boards and Investors: Leaders can say, “We are reducing event spend to the industry median and reallocating to analytics where we are bottom quartile.” That is a disciplined, defensible narrative.
Benchmarking shouldn’t be copying competitors’ line items. Benchmarking should be used to help contextualize your choices by seeing where you stand, deciding where to be different on purpose, and ensuring no investment is left to legacy habit or guesswork. Done well, it shifts the budgeting conversation from “what can we cut?” to “what should we prioritize?”
Next Steps
Benchmarking will not magically deliver a “perfect” budget. What it does is inject discipline, clarity, and external perspective into a process that is too often insular. To bring this discipline into your next planning cycle, five takeaways stand out:
- Benchmark to Challenge Assumptions, Not to Validate Them:
Start with hypotheses: “Our sales productivity is above average” or “We run lean on G&A.” Use external ratios to test whether these beliefs hold up. When the data contradicts instinct, resist defensiveness, as the friction is where insight lives. - Build Two Peer Sets: Core and Aspirational:
A core set of peers keeps you grounded in current reality, while an aspirational set points toward the operating model you want in 18–24 months. This dual lens prevents both complacency and overreach. - Normalize Relentlessly:
Translate raw spend into comparable ratios: per employee, per customer, per dollar of revenue. Adjust for geography and maturity. Only then can leaders draw valid comparisons that inform decisions. - Put Benchmarks into the Planning Artifacts:
Don’t leave them in side decks. Add a peer range column into budget templates, include a simple quartile chart in board presentations, and flag major deviations with notes on intent. Visibility normalizes benchmarking as part of the process, not an optional add-on. - Connect Spend to Outcomes.
Never stop at “peers spend more.” The critical step is tying allocation to results: “If we move from bottom quartile to median in customer support spend, we expect to reduce churn by X% and increase renewal rates by Y%, based on peer outcomes.” This logic builds credibility and sets the stage for post-investment measurement.
Don’t budget in a vacuum. Start small, choose your peer sets with care, and weave benchmarking into the very structure of your planning process. The result will not only be a better budget, but also a more aligned and more strategic organization.