Benchmarking in Valuation: Why It Matters

Benchmarking is one of the most powerful (and underused) tools in business valuation. By comparing your company to others in the same industry, size range, or region, you can uncover critical insights about your business’s performance, risk level, and market value.

Whether you're preparing to sell, seeking financing, or just planning for growth, using valuation benchmarks helps you set realistic expectations—and avoid costly surprises.

Step-by-Step: How to Benchmark Your Business in a Valuation

1. Identify Your Industry Code

Start with your NAICS code (used by the SBA and IRS). You’ll need this to find relevant comparison data.

Tip: You can look up your NAICS code at NAICS Association.

2. Find Relevant Benchmark Data

Use tools and databases to gather valuation and financial metrics from similar companies:

• DealStats – Comparable private company sales data

• BizMiner or RMA – Industry-specific financial ratios

• IBISWorld – Risk profiles and macroeconomic industry data

• SBA.gov – Lender guidelines and industry-specific valuation requirements

3. Compare Key Financial Ratios

Benchmark these key areas:

• Gross and net profit margins

• Operating expense ratios

• Revenue per employee

• EBITDA multiples

• Owner’s compensation adjustments

4. Adjust for Size and Region

Smaller businesses typically sell for lower multiples than larger, scalable operations. Local economic conditions also matter—benchmark regionally when possible.

5. Use the Data to Normalize Your Financials

Normalization removes owner-specific or one-time items to create a fair basis of comparison. Apply benchmarks to check if your adjustments are consistent with industry norms.

Helpful Tools and Templates

• RMA eStatement Studies for financial ratio comparisons

• BizMiner Reports to analyze typical performance for your size and industry

• Development Theory's Benchmarking Service – Included in our Business Valuations

  
  

Pro Tips from the Field

✅ Start early – Don’t wait until you need a valuation. Benchmarking is best used proactively.

✅ Use multiple sources – No single database has it all. Cross-check for reliability.

✅ Look beyond averages – Use industry quartiles to see where you actually stand.

✅ Discuss with a valuation expert – They’ll help interpret the data in context and apply it to your business correctly.

Common Pitfalls

Avoid these traps when benchmarking:

• Using outdated data (older than 2 years)

• Assuming your business should match the “average”

• Ignoring industry risk or competitive dynamics

• Benchmarking only on revenue without adjusting for profit or margins

  
  

Final Checklist

Before using benchmarking in your valuation:

✅ I’ve identified my NAICS code.

✅ I’ve pulled industry-specific data from at least two sources.

✅ I’ve reviewed financial ratios and compared them to industry standards.

✅ I’ve normalized my financials for accurate comparison.

✅ I’ve talked to a professional about how benchmarks are applied in my valuation.

Bottom Line

Valuation benchmarks give context to your numbers and help you defend your value. They’re essential for building credibility with lenders, buyers, or investors.