Benchmarking Your Vendors: How to Measure Against the Market

Benchmarking Your Vendors: Are You Getting True Market Value?

In procurement and vendor management, there is a dangerous comfort zone known as “contract compliance.” Your vendor delivers on time, the invoices match the purchase orders, and the quality is acceptable. On the surface, everything looks green. However, meeting the terms of a contract signed three years ago does not mean you are getting the best value today. Markets shift, technologies evolve, and pricing models change. Without a regular reality check, you might be overpaying for outdated services or missing out on innovations that your competitors are already leveraging.

This reality check is called vendor benchmarking. It is the strategic process of comparing your vendor’s pricing, performance, and processes against external standards, industry peers, or your own historical data. While vendor scorecards tell you how a vendor is performing against the contract, benchmarking tells you how the contract is performing against the market. Implementing a regular benchmarking cycle is critical for three primary reasons:

Cost Control: It identifies “value leakage” where you are paying above-market rates for standard goods or services.
Service Improvement: It highlights gaps where your service levels (SLAs) lag behind industry best practices.
Risk Mitigation: It exposes reliance on outdated technologies or processes that are no longer standard in the industry.

The Three Key Types of Vendor Benchmarking

Benchmarking is not a monolithic exercise. Depending on your goals: whether you want to cut costs or improve quality, you can employ different methods to get the data you need.

1. Internal Benchmarking: This is often the easiest starting point. It involves comparing a vendor’s current performance against their own historical performance or comparing similar vendors across different business units within your organization. For example, you might analyze whether the marketing agency used by your European division is delivering better ROI than the agency used in North America. This highlights inconsistencies in value without needing external data.

2. Competitive (External) Benchmarking: This is what most people think of when they hear the term. It involves comparing your vendor’s pricing, terms, and KPIs directly against their competitors. This data is often gathered through market research, industry reports, or by issuing a Request for Information (RFI) to the market to gauge current rates. This type of benchmarking is essential before renewing a major contract.

3. Best-in-Class (Strategic) Benchmarking: This approach looks outside your specific industry to find the absolute leaders in a specific process. For instance, if you want to benchmark your logistics vendor’s delivery speed, you might look at how Amazon manages last-mile delivery, even if you are in the pharmaceutical industry. This helps you understand the theoretical limit of “what is possible,” driving innovation rather than just cost savings.

Benchmarking vs. Scorecards: What’s the Difference?

A common point of confusion arises between vendor scorecards and benchmarking. While both are tools for measurement, they serve fundamentally different purposes and look in different directions. A scorecard looks inward at the specific relationship and the contract you signed. Benchmarking looks outward at the market reality.

If you rely only on scorecards, you risk being “the best house in a bad neighborhood”, having a vendor who perfectly executes a mediocre contract. To truly optimize your supply base, you need to use both tools in tandem. The table below outlines the key distinctions:


Feature	Vendor Scorecard	Market Benchmarking
Focus	Internal Performance	External Comparison
Data Source	Your own operational data	Market reports, RFIs, Industry peers
Frequency	Monthly / Quarterly	Annually / Before Renewal
Goal	Contract Compliance	Competitive Advantage
Question Answered	”Did they do what they promised?"	"Is their promise still good enough?”

For more on building internal measurements, see our guide on Vendor Performance Scorecard Templates.

A 4-Step Process to Conduct a Benchmarking Exercise

Conducting a benchmark requires a structured approach to ensure the comparison is an “apples-to-apples” analysis. Comparing your premium, white-glove IT support vendor against a budget, offshore provider will not yield useful data.

Step 1: Select the Metrics That Matter

Begin by defining exactly what you are measuring. While price is the most obvious metric, it is rarely the only one that matters. You should also benchmark payment terms (e.g., Net 30 vs. Net 60), lead times, warranty periods, and innovation rates. Review your internal data on measuring vendor performance KPIs to establish your current baseline. You cannot compare yourself to the market if you don’t know your own numbers first.

Step 2: Gather Comparative Data

This is the most challenging step. For commodity items, pricing data is often publicly available. For complex services, you may need to purchase industry reports from firms like Gartner or Forrester. Alternatively, you can issue a formal Request for Information (RFI) to the market. This allows you to ask other vendors for their standard rates and service levels without committing to a purchase, giving you valuable data points for comparison.

Step 3: Analyze the Gaps

Once you have the external data, compare it against your baseline. Look for significant variances. Are you paying 20% more than the market average? Is your vendor’s delivery time two days slower than their competitors? Be careful to account for qualitative differences: sometimes a higher price is justified by superior account management or lower risk.

Step 4: Take Action (Renegotiate or Replace)

Data is useless without action. If the benchmark reveals you are paying above market rates, schedule a meeting with your vendor. Present the data objectively. Most strategic partners will be willing to adjust their pricing or improve their service levels to retain your business. If they refuse to adapt despite clear evidence of a market gap, it may be time to consider a formal RFP process to replace them.

Benchmarking “Soft” Metrics: Quality and Innovation

Benchmarking price is straightforward math, while benchmarking quality is an art. How do you measure if your marketing agency is as “creative” as the market standard, or if your software vendor is as “innovative” as their peers?

To benchmark these soft metrics, you must rely on qualitative data sources. Peer networking groups and industry conferences are invaluable here. Speaking with other procurement leaders about their experiences can give you a sense of what “good” looks like in the market. Additionally, look for proxy metrics. For example, “Innovation” can be benchmarked by tracking how often a vendor releases new features or updates compared to their competitors. “Ease of doing business” can be benchmarked by looking at industry Net Promoter Scores (NPS).

How Vendorfi Automates Your Benchmarking Data

The prerequisite for any benchmarking exercise is accurate internal data. If you have to spend weeks digging through spreadsheets to calculate your current vendor’s average lead time or effective hourly rate, you are already behind. Vendorfi streamlines this process by serving as your central repository for vendor performance data.

Instant access to historical pricing and performance trends

Vendorfi automatically aggregates data from your invoices and purchase orders. This gives you instant access to your historical pricing trends and performance metrics. When you decide to benchmark a category, you already have your internal baseline ready to go.

Centralized contract data for term comparison

By storing all your contracts in Vendorfi, you can easily pull reports on payment terms, renewal dates, and SLA commitments across your entire vendor base. This allows you to quickly identify which contracts are outliers compared to market standards and prioritize them for renegotiation.

Conclusion: Knowledge is Negotiating Power

Benchmarking is not an exercise in squeezing every last cent out of your vendors. It is about ensuring fairness and competitiveness. When you walk into a negotiation armed with accurate market data, you shift the dynamic from a subjective debate to an objective business discussion. By regularly benchmarking your strategic vendors, you ensure that your partners remain competitive, your costs remain controlled, and your business remains agile in a changing market.

Frequently Asked Questions (FAQ)

How often should I benchmark my strategic vendors?

You should conduct a comprehensive benchmark for strategic vendors at least once a year, ideally 3-6 months before a contract renewal. This gives you the leverage and time needed to renegotiate terms or switch suppliers if necessary.

Where can I find external data for benchmarking?

Common sources include third-party market research firms (like Gartner or Forrester), industry trade associations, procurement networking groups, and by conducting your own market research through RFIs (Request for Information).

Is benchmarking only about price?

No. While price is critical, benchmarking should also cover service levels (SLAs), payment terms, warranty conditions, lead times, and quality metrics. A vendor with the lowest price but the slowest delivery is likely costing you money in the long run.