By Kennedy Backer, Director of The Rosenberg Survey
When firm leaders review benchmarking data, they often start with a straightforward question: Are we above average or below it?
It’s an understandable place to start. It’s also rarely enough to tell you what’s happening inside your firm.
A benchmark is not a grade. It doesn’t tell you whether your firm is good or bad, successful or unsuccessful, on the right path or the wrong one. It gives you a point of comparison. The value comes from what you examine next.
The average is a starting point, not a verdict
An average can help a firm see whether a result appears typical, unusual, or worth a closer look. That perspective is useful, especially when leaders have only been comparing the firm with its own prior performance.
But an average compresses a lot of variation into one number.
Two firms can land on the same side of a benchmark for very different reasons. One might report strong profitability because its pricing, staffing, and operations are working well. Another might report similarly strong profitability because partners are carrying an unsustainable workload or the firm is postponing investments it will eventually need to make.
The same is true of a below-average result. Lower revenue per employee could point to overstaffing. It could also reflect hiring ahead of anticipated growth, developing a new service line, or creating capacity that hasn’t yet produced revenue.
The comparison shows where the result stands. It doesn’t explain why.
Strategy changes the meaning of the number
A result becomes more useful when leaders interpret it in the context of what the firm is trying to accomplish.
Before reacting to a comparison, ask:
- What is our current strategy?
- Is this result consistent with that strategy?
- Which decisions may be affecting it?
- Is this a temporary change or part of a longer pattern?
- What else do we need to understand before we act?
Consider two firms pursuing growth. One may be expanding quickly, adding people and investing in technology to support its next stage. Some short-term pressure on profitability may be expected. The other may be pursuing slower, more selective growth while prioritizing margins and partner capacity.
The same growth or profitability result wouldn’t mean the same thing for both firms. The benchmark matters, but so does the strategy behind it.
Firm leaders shouldn’t use strategy to dismiss every unfavorable comparison. But they also should not treat every difference as evidence that something is wrong. The more useful question is whether the result reflects an intentional choice and whether that choice is producing the outcome the firm expected.
One measure rarely explains itself
Financial and operating measures are connected. Revenue growth may be influenced by pricing, acquisitions, partner additions, service mix, or client volume. Profitability may reflect billing rates, staffing leverage, compensation, utilization, or cost discipline. Turnover may affect capacity, recruiting costs, workload, and client service.
Looking at one measure in isolation can create false confidence or unnecessary concern. Suppose profitability is below a relevant benchmark. The immediate response might be to reduce expenses. But the underlying issue could be pricing. It could be poor realization, a staffing imbalance, limited delegation, or partners holding on to work that should be performed at another level. The firm might also be investing ahead of growth.
Each explanation points toward a different response.
Before deciding what to change, leaders need to understand what is driving the result. That usually requires reviewing several related measures alongside what the leadership team knows about the firm’s operations.
The benchmark identifies the area to investigate. It does not diagnose the cause by itself.
Begin with the business question
Benchmarking is most useful when leaders start with a specific business question rather than a desire to see where the firm ranks.
During each survey cycle, I see firms focus first on whether a result is above or below the benchmark. The more useful conversation usually begins when they ask what is driving the difference.
Without a clear question, benchmarking can become a search for confirmation. Leaders may look for evidence that the firm is performing well, support for a proposed change, or proof that an existing concern is justified. That can lead them to focus on the comparison that best supports what they already believe.
Instead of asking only, “How do we rank?” ask:
- Are we pricing our work appropriately?
- Is our staffing model supporting profitable growth?
- Are partner workloads sustainable?
- Are we developing enough leadership capacity for succession?
- Does our compensation approach support the behavior our strategy requires?
These questions are more specific. They also make it easier to determine which measures deserve attention.
The goal isn’t to find the number that makes the firm look strongest. It is to find the information that helps the leadership team understand the business more clearly.
Benchmarking should lead to investigation, not imitation
Firms also need to be cautious about treating a strong result as a formula to copy. Studying firms with stronger results on a particular measure can reveal possibilities and challenge assumptions. But the same operating practice won’t necessarily produce the same result in every firm.
A staffing structure may depend on service mix. A compensation model may reflect a particular ownership structure. A high growth rate may come from an acquisition rather than organic growth. A technology investment may work because the firm also changed its processes and expectations.
The result can show what other firms have achieved. It can’t tell you that their path is automatically right for yours.
Benchmarking should inform leadership judgment, not replace it.
What a useful benchmark should do
A useful benchmark should help a firm do at least one of three things:
- Confirm that a result is broadly consistent with its strategy
- Identify an area that deserves closer attention
- Challenge an assumption about how the firm operates
Sometimes the comparison will reinforce the current direction. Sometimes it will expose a gap. Sometimes it will show that the original question was too narrow. All three outcomes can be valuable.
The point isn’t to beat the average. It’s to understand why your firm is where it is, whether that position is intentional, and what you need to examine next.
That’s when benchmarking becomes a tool for better leadership decisions.
