Getting Real About Data Analysis
In 2020, IDG estimated that small and medium-size businesses managed 48 terabytes of data, with an expectation of 50 percent growth in 12 to 18 months. Assuming even the most conservative growth projections three years out, 50% growth in 18 months, SMBs would now be handling an average of 108TB, or more than double their 2020 volumes.
But there's a big difference between handling data and using it. That's where data analytics (also known as "big data") comes in.
Shutting down the noise
Do a Google search on "small business data analytics" and you may shut your laptop down and run for the hills. Much of what you'll read from your Googling talks about businesses investing tens of thousands of dollars, if not more, into data analysis operations. Many of these stats are happily provided by the companies who like you to spend that money with them.
I could write a book on this topic, but if you're completely new to analytics, you'll probably be happier if I explain some possibilities and how to get started. So let's get going!
Why should an SMB consider data analysis?
Wouldn't it be great for your local health-food store to know which organic baking ingredients are going to fly off their shelves in December — and which may languish through the winter? Armed with that information, they could prevent overstocking and save on overhead.
In my role as Chief Risks and Analytics officer at Fora Financial, everything I do is driven by data — working with our sales and marketing teams, for example, to break down sales data and demographic information for sales campaigns. I've also worked with at least two other teams as a collaborator and advisor.
Product Development benefits from data crunching. We may, for example, see that clients in a certain industry are not as likely to take our product. This could lead to developing a different product that may better serve that industry. Another area of operations I've been involved in, inventory management, is just one of many business areas ripe for analytics. (See list below.)
Are you looking to gain efficiencies? Increase profits? More deeply engage your customers? By tackling these hurdles. you're expanding your market profile and adapting to changes with much more dexterity. You're also effectively removing the barrier between you and larger businesses.
These are some other approaches to data analysis:
Cite patterns. Finding trends in customer behavior, crunching sales numbers, and correlating data sets with one another can fuel more informed decisions based on fact rather than intuition.
Budget and forecast with profitability analyses. Looking at trends and patterns can help you commit to realistic growth and investment plans.
Manage risk. Data analysis can help a business identify high-risk events that may otherwise go unaddressed. While it's easy for a business in a college town to know that sales will plummet in May, it may be harder for that same firm to anticipate and plan around shifts in college enrollment or changes in the local climate.
Make better customer insights. What needs of your market are going unfulfilled that you can address, to gain a competitive advantage?
Where's the data?
This is the fun part: You likely have much if not all that you need. Here's a partial list of data types you can tap:
Sales records. What and how much you're selling to which segments and when.
Customer feedback. (including complaints)
Inventory levels (Monthly, quarterly, or annual): Identify hot performers and laggers.
Social media stats. Posts viewed, liked, commented on, and forwarded.
Website analytics. How many visitors is your site getting? How many pages do they, view, how long do they stay, where are they located?
Customer surveys. You can generate new data this way, and tailor it to your specific business goals.
As you gain more analytic savvy, you can explore third-party data, including local contact lists, market research data for specific customer segments, and your industry benchmarks.
The Holy Trinity: Three types of data analysis
Consider the possibilities of each of these for your firm.
Descriptive and diagnostic analytics use granular historical data to explain current business conditions. Think of this as "where are we, how did we get here, and why? Ex. Your overhead increased 16 percent in 2023, but your profits grew only half as much. Looking for answers like these is Square One for many businesses on the road to more complex analytics.
Predictive analytics are based on the idea of "past is prologue." If you've experienced sales surges for the last three Memorial Day weekend, you may experience another one in 2024. Are you ready? This is great for citing potential opportunities and risks.
Prescriptive analytics offer suggestions for managing potential outcomes. This is the most sophisticated form of analytics.
What tools to use
For a long time, data-driven decision-making was something lofty and very "Fortune 500." But like most business areas, technology has leveled the playing field, breaking down barriers and making data analysis potentially as commonplace as using QuickBooks to manage your accounts and taxes.
A recent survey pegged small business data-analytics spending at between $10,000 to $100,000 for apps and consulting services. Sure, that's entirely accurate for a mature data operation, but you can start small with tools you already have or can get easily, like Google Sheets or Excel, or Microsoft Access. Use these to take your raw, unrefined data, structure it, and clean it up to suit your mission. Work with your bookkeeper, accountant, and other operations experts to cull data, create tables for analyzing it, and evaluating the results.
I hope this primer gets you excited and thinking about your data analysis possibilities. Future columns will address more sophisticated data analysis tools, engaging with third-party consultants, and some prime live examples of data analysis in action.
In the meantime, please feel free to share your data-crunching success stories with me at [email protected]
Finance and accounting lead the pack
59% of data and analytics leaders in business say these are the two most data-driven departments, followed by...
Sales and distribution 44% Marketing 29% Production 27% Logistics and supply chain 25% Source: BARC Research, 2023
Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.
