Entrepreneurs light the way with data. At a high level, this is easy: Revenue must exceed expenses in order to make a profit. But under the hood, function-specific data points matter just as much.
Using data to make departmental decisions starts with compiling them, which takes an ETL process. Different ETL tools can consolidate your business data, making it easier to see trends. Trends you spot should drive your actions.
Where should you look, specifically? Here are six areas in which data can help you make better business decisions:
Nowhere does data matter more than in how and where you spend your money. This is especially true if your company is still young, when you're either bootstrapping with your own money or spending someone else's.
To budget effectively, you can't just look at any one metric. Determining your startup and ongoing operations costs, likely revenue, and the percentage of profit you can reasonably expect are smart places to start. Informed estimates are infinitely better than none at all.
New businesses need to acquire customers, but not all marketing tactics are worth the cost. Invest in the wrong channels, and you could be wasting money. Data helps you understand which marketing approaches are most successful so you can concentrate on those.
Launch a preliminary campaign to test things out. A brand-imaging campaign, simple product launch, or survey will suffice. Use metrics like conversion rate and cost per acquisition to determine which are worth investing in more deeply. Also pay attention to audience demographics, platform-specific performance, and the resonance of your copy.
3. Product development
The genesis of most entrepreneurs' ventures is the product or service itself. But it's not enough to have a good idea; that idea also needs to be developed profitably and sellable at scale.
Use data to evaluate your product's design and features against your audience's expectations. Market research can tell you what level of quality, which features, and what packaging appeal to your target audience. Keep a close eye on R&D expenses as a percentage of sales to decide which investments are actually paying off.
Pricing a product is trickier than it sounds. A high price suggests good quality but restricts the range of buyers. A low price makes a product more accessible but conveys lower quality. Finding a balance is key.
As with product development, it's market research that will provide the data you need to determine the right price for your product. Take a look at how your competitors are pricing their offerings. While racing to the bottom on price isn't a smart strategy, you also don't want to be out of line with the broader market.
For obvious reasons, most entrepreneurs are eager to expand. But before you supersize your staff, make sure the rest of your operations are ready for it.
Premature expansion can weaken your company, especially if you can't afford to invest in tools or training after you've made room for those extra salaries. Check your labor costs: While service-based companies can typically stomach labor costs of 50 percent of gross sales, product companies should keep theirs in the 30 to 50 percent range.
6. Client management
Companies that can't retain clients aren't long for this world. Retention is a critical figure to monitor, but it's influenced by all sorts of other metrics. The key is deciding which you want to focus on when making client management choices.
Choose two or three customer success metrics that relate to your differentiator. If churn is a problem, keep tabs on it while sending gifts and investing in account team training. Perhaps you want to boost renewals by 10 percent this quarter: Try a loyalty discount for three months, and see if it helps.
Clients stay and leave for all sorts of reasons. If in doubt, sit down with your sales, account, and customer service teams to get to the root of the issue. You never know when something like slow ticket resolution is to blame.
You wouldn't be an entrepreneur if you weren't willing to take risks--but that doesn't mean flying by the seat of your pants. Trust the data, and make tweaks when you don't see the trends you want. When data guides your decision making in these six areas, you'll be better positioned to build a business that lasts.