What does your business spend to make a dollar?
Few small and medium businesses know. You should – the numbers between the top and bottom line are where the magic happens. These numbers, known as unit economics, are the core of your business, and as any athlete knows, you need a strong core to compete.
Most small businesses collect thousands of data points they never use, held back by the limitations of manual data processes. Despite the availability of robust, affordable data analysis platforms, a 2019 study revealed more than 60 percent of businesses still relied on spreadsheet-based reporting. This creates a huge opportunity for small businesses to upgrade and get the jump on the competition.
In a manual process, key metrics like customer acquisition costs are calculated by people and entered into a spreadsheet. Reports are run as needed – typically at financial close. This method requires a lot of manhours and introduces the risk of errors. Information may be outdated by the time a report is run. Various stakeholders may create their own versions, obscuring the truth of what is happening in the company as a whole.
Replacing a manual process with a data platform ignites your data’s potential. Data is pulled directly from the source without the risks and expense of manual entry. Insights are available in real time, or as close to it as possible. Easy-to-read dashboards offer every stakeholder a comprehensive view of what’s happening in their department and the company as a whole.
The bar for growth and efficiency keeps rising. Using the data you already have to make faster, better decisions is an obvious way to keep up. The pieces that make up a modern analytics stack are cheaper and easier to use than ever before, putting a data-driven culture within reach of virtually any ambitious entrepreneur.
Building your metrics ladder
The first step to understanding your unit economics is identifying the units.
A metrics ladder is a visual representation of where your money comes from. It starts at the top with total revenue, then breaks that number down into its individual parts.
Say your revenue comes from the number of tickets sold multiplied by ticket price. Maybe that can be broken down further between first-time and repeat customers, or perhaps it breaks down by city or by season.
A metrics ladder creates a clear picture of where revenue comes from. It aligns all the company’s decision makers behind a single source of truth. And it makes sure you are tracking and managing the things that will move the company toward its goals.
Turning data into insights
Once you have your metrics ladder, you can tie it to the systems collecting data. This is the technical foundation for your data stack.
For example, customer purchase data might be coming from Stripe, while online conversions might be recorded in Google Analytics. Instead of paying a clerk to run reports from each of these tools and enter the information into a spreadsheet, you can integrate the systems with a data warehouse. The data flows directly from the tool into the warehouse to be sorted and stored.
A data warehouse like Snowflake, Amazon Redshift, or PostgreSQL consolidates all the metrics your systems collect, analyzes it, and sorts it into buckets.
Business intelligence, or BI, tools like Tableau, Power BI, or Sisense pull unstructured data from these buckets and turn it into actionable insights. They can create data models, reports, dashboards, and intelligent forecasts based on the nearly real-time data flowing into your warehouse.
No custom coding needed
If you have data engineers on staff, you might be tempted to have them custom code the integrations between these layers of technology.
Writing custom integrations will not save you any money. In fact, it can cost you months in manhours. Excellent, affordable integration tools like Stitch, Fivetran, and Tray are ready to go right out of the box. Rather than commit four months of an engineer’s time to writing code, you can have your entire system up and running in about two weeks.
Out-of-the-box solutions are also easier to maintain. When you choose an integration tool, data warehouse, and BI tool that harmonize with one another they will update together, avoiding the breakdown that might happen if custom code doesn’t update with one of the tools.
Wondering if your company is “too small” to use unit economics is like wondering if you are too small to grow your profits. The answer is, of course not. A data platform is an effective and affordable way for companies of any size to harness the power of data you are already collecting and build a core strong enough to compete with the big guys.
Lauren Balik is the principal at Upright Analytics, a strategic consulting firm that helps businesses build data-driven cultures. Lauren helps businesses understand, integrate, and love their data. Contact her at [email protected] or visit uprightanalytics.com to learn more.