Win Today and Tomorrow by Prioritizing EBITDA Benchmarking
Whether navigating growth, preparing for a transition or simply striving to stay ahead, companies that prioritize benchmarking gain a critical advantage. By focusing on EBITDA, organizations can turn financial comparisons into actionable strategies that drive stronger results today and sustainable success tomorrow.
EBITDA benchmarking equips today’s organizations with a reliable yardstick for performance, makes it easier to spot opportunities for growth and supports lasting competitiveness — regardless of the industry or stage of business.
For the EBITDA Skeptics
Plenty of debate surrounds EBITDA, which is earnings before interest, taxes, depreciation and amortization. It leaves out capital expenditures and shifts in working capital, so critics are correct that it sometimes hides important cost realities. Yet for operational comparisons and high-stakes decisions across the entire finance sector, EBITDA remains a trusted and widely used benchmark. Leading organizations, investors and analysts rely on it to deliver an apples-to-apples view of cash flows — making it foundational for everything from day-to-day guidance to strategic planning, even in the face of ongoing criticism.
What Is Benchmarking?
Think of benchmarking like comparing grocery bills among similar households. The real insights only appear when those numbers are viewed side by side — revealing what’s efficient, what needs work and where meaningful changes are possible. Peer benchmarking makes the numbers matter, showing companies where they lead, where they keep pace and where focused improvement pays off.
How Do Top Firms Stack Up?
While organizations can benchmark multiple financial measures, one of the metrics we like to focus on is EBITDA because it strips out financing, accounting and tax differences, enabling one of the cleanest operational comparisons. Analysts focus on EBITDA margins — how much profit is made per dollar of revenue — as a signal of operational effectiveness. Strong teams continuously compare these margins to those at operationally similar companies, adjusting for unique, one-off events. When margins are strong, it often means operational plans are working; weaker results signal the need for some deeper digging.
When selecting peers for benchmarking, focus on public companies with similar operating models, products or services rather than size alone — EBITDA margins naturally normalize for scale differences, making a $50 million company's margins directly comparable to a $500 million company's margins.
Turning Data into Decisions
The real power of benchmarking is how it transforms numbers into results. Here's how leading organizations put benchmarking to work:
Strategic Applications:
- Performance-Gap Discovery: Pinpoint exactly where improvements will move the needle, so efforts and resources go further.
- Strategic Validation: Cut through the noise of opinions and gut feels — use clear, data-driven benchmarks to back up critical decisions.
- Competitive Clarity: Know if performance is truly setting the pace or if it's time to shift direction.
- Goal Alignment: Set ambitions grounded in industry realities, so teams see exactly how their work supports big-picture objectives.
Operational Advantages:
- Efficiency Insights: Uncover proven tactics for margin improvement and growth seen among operational peers.
- Risk Management: Spot weaknesses before they matter and keep performance on track.
- Enhanced Internal Planning: Shape budgets and strategy with credible, external comparisons.
- Cash-Flow Insights: Connect EBITDA with capital expenditures (capex) to get a sharper view on available cash and growth potential.
Market Positioning:
- Trend Spotting: Anticipate shifts and headwinds by tracking how industry patterns are unfolding.
- Valuation Clarity: Understand how EBITDA and growth feed into business value and negotiation leverage.
- Investor Confidence: Use benchmarks to validate your story with boards, investors and lenders.
The most resilient companies treat benchmarking analysis as a starting point for deeper investigation. When benchmarking reveals performance gaps or emerging trends, leading organizations dig into public filings and operational details to understand what's truly driving peer performance. This combination of quantitative benchmarks with nuanced context and strategic intelligence ensures strategies rest on solid ground. Whether for today's operations or preparing for ownership transitions, this disciplined approach to benchmarking delivers clarity at every critical milestone.
Making Benchmarking Work: Three Steps
- Choose the Right Peer Group
Focus on public companies with similar operations, service models or geographic reach. EBITDA margins adjust for scale, making it possible to benchmark small and medium-sized enterprises against larger peers and uncover realistic, aspirational targets. - Prepare and Analyze Your Data
Track EBITDA, revenue trends, returns and capex. Look at the 25th and 75th percentiles, the median and the average. Filter out the noise of temporary, unusual events for clean comparisons. - Turn Insights into Action
Compare results; when performance lags, investigate what leading organizations do differently. When the company is ahead, share and reinforce successful moves.
Nail Your Benchmarking Launch
Benchmarking is a balancing act. Sourcing quality data, selecting the right peers, building actionable data flows and interpreting results all demand expertise — especially at the beginning. Going at it alone risks missteps and missed insights. While no two organizations face the exact same challenges, applying a disciplined, data-driven approach helps ensure benchmarking becomes more than just a comparison exercise.
Done well, it becomes an ongoing process that equips leadership teams with the clarity, confidence and foresight to guide decisions that matter today — and prepare for what comes next. At FMI, we’ve seen how combining rigorous benchmarking with deep industry insight creates a durable process and a trusted foundation for steering both data and decisions.
Kyle Coleman is an Investment Banking Director with FMI Capital Advisors. He can be reached at [email protected].
