By Tracey Smith
The topic of data analytics is one of the hottest in business today. It comes with promises of delivering business insights and high returns, but it also comes with challenges. As a consultant in analytics at Numerical Insights LLC, the most popular comment I receive from companies is, “we have so much data but we don’t know what to do with it!” This article will provide business leaders with tips on how companies use analytics to impact their bottom lines.
Tip #1: Use analytics to reduce your physical inventory
If you provide physical products to your customers, you undoubtedly stock inventory. From a financial point of view, inventory ties up cash and prevents you from using it for other company initiatives. If you can reduce your inventory, you can free up cash flow.
By studying customer ordering patterns over time, data analytics can be used to help determine how much inventory you should stock of each product. The data can show you how many of each product customers order each month and how stable that order level is over time. Analytics can determine which products are “high runners,” which products have stable order patterns and which ones are highly volatile in terms of order quantities. As a real example, in one manufacturing company, we determined that roughly one third of the products they offered were only ordered once a year, yet they were carrying inventory for all products.
Tip #2: Use analytics to get rid of dead product offerings
As a company grows, often its list of product offerings grows too. Product teams are very good at spending their time on the creation of “the next great thing,” but rarely is anyone dedicating sufficient time to analyzing the entire portfolio. Products have a life cycle and that life cycle needs to be managed.
Product analytics is an area of data analysis which will help companies focus their efforts on the products that generate the majority of their profit. A simple analysis of each product’s overall contribution to total profit will do the trick. This contribution is a product of the profit margin for each product combined with the volume of product that is ordered. Analytics can show you which products are growing your bottom line, which are tapering off and which ones are costing you more to manage than the profit they generate.
Tip #3: Use analytics to set your customer service levels
The focus of most companies is to grow the number of customers. However, over time the value of each customer changes. Your most important customers five years ago may not be the most important today. This is where data analytics can step in and help you make some tough decisions regarding customers and customer support.
In the previous tip, we analyzed our products in terms of which ones contributed the most to our profit. We can do the exact same analysis on our customers. In most cases, the majority of your profit comes from a few, valuable customers. As we look at a list of customers in descending order of profit, we will start to reach those customers that are contributing very little to the bottom line.
But they are still providing us with profit, right? Not necessarily. We need to consider how much time and effort we are spending supporting and managing those customer accounts. Are they providing enough profit that they are worth the cost of continued support?
Tip #4: Use analytics to improve quality and customer service
Whether you provide products or services, quality and customer service are what will distinguish you from your competition. These two topics can make or break your reputation.
When it comes to product quality, no customer wants to make a purchase and find out that the product was defective or didn’t live up to its estimated lifetime. When it comes to services, no-one wants to purchase your service and be disappointed by what they received. Products and services can disappoint your customers in many ways and often the method of reporting that disappointment is an email or phone call to the seller. While the quantity of phone calls is sometimes tracked, rarely is the reason for the phone call documented. This is where analytics can help.
If you track customer complaints, you can begin to categorize the types of complaints to see which ones occur most frequently. For each type of complaint, you can assess the level of impact that complaint has to your bottom line. By putting these two pieces of data together, you can determine which complaint types you should address first in order to raise your customer service reputation as quickly as possible.
Tip #5: Use analytics to get more out of your marketing budget
For this tip, I reached out to marketing expert, Roger Yarbrough of Stratistry. Here’s what he had to say about using analytics to get more from your marketing budget.
You want to spend more time and energy on your most valuable customers. However, apart from keeping them, you also want to attract other customers that match the profile of your most valuable ones. This is where data aids you in your marketing efforts.
When you spend money on marketing your business, you expect that it will help you grow it. To ensure your marketing dollars are effective, you need to understand how much money it takes to acquire a new customer. Determining this cost will require that you’re able to attribute marketing tactics to the individual customer, e.g., using a coupon code for orders that can be traced to a customer transaction.
Once your marketing dollars can be attributed to the corresponding customers, you will know the cost to acquire a customer. If this cost exceeds the lifetime value of the customer, you can either find lower cost marketing tactics for this customer profile or change your marketing message to focus more exclusively on the higher value customers. Ultimately, you will maximize your marketing dollars and improve your bottom line.
Whether it’s inventory, product lines, customer accounts or marketing efforts, the application of data analytics to drive business decisions has become a must-have tool for business success.
Tracey Smith is an internationally recognized business author, speaker and analytics consultant. She is the author of multiple books and hundreds of articles. Tracey has worked with and advised organizations, both well-known and little-known, on how to use data analytics to impact the bottom line. If you would like to learn more about Tracey, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page. Tracey Smith’s Twitter: @ninsights.
Roger Yarbrough is the digital practice lead with Stratistry, a marketing and consulting firm that derives value from data for brandshttp://@NInsights and companies. Roger possesses over 20 years of experience and his background as a strategy leader at Arthur Andersen and Deloitte provides him with diverse expertise and the ability to quickly deliver value to engagements. Throughout his career, Roger has led analytics teams focused on improving the customer journey and driving ROl. If you would like to learn more about Roger, please visit www.stratistry.com or contact Roger Yarbrough through LinkedIn. Roger Yarbrough’s Twitter: @rogeryarbrough.