How Do You Know What You Know?
The Importance of Data
By Jeremy Dutton
June 1st, 2024
Let me start by asking you a question. Imagine you're a small business owner or a key player in sales or operations. Who is your best client, and how do you determine this?
Likely, someone will immediately come to mind, “It's Jordan over at XYZ widgets!” Let me dig a little further. What was their total sales volume with your company last year? You likely have a rough number in mind, you may even know the exact number, but if I keep querying you for more specifics, your answers might become more uncertain. For example, are they buying more or less than this time last year? Are they buying the same product or has their buying behaviour changed?
In our day to day lives, we often rely on a mix of memory and instinct to make decisions, especially decisions made on the spot. Thus, it's natural to rely on this same combination when making business decisions. However, relying primarily on memory and instinct can lead to problems.
The limits of memory and instinct in business decision making
Let's explore this a little further. What if instead, I asked you who your 20th best customer was and what their total sales volume was last year? I am willing to bet you won't know this off the top of your head.
What if a customer asked for a discount? You would probably say yes if it was your best customer asking, but would you give it to your 20th best customer as well? Maybe your 20th best customer is still quite high in terms of your total revenue…or maybe not! Discounts should be seen as an investment in future revenue. Do you want to risk giving a discount to customer where that investment will not be returned, or worse, alienating a customer that is bringing in lots of revenue? How would you decide without knowing where they really stood?
This example isn't just an exercise—it highlights a critical gap in our decision-making processes. Relying solely on memory and instinct, as comforting as it may be, can lead to missed opportunities and skewed business strategies. There is a better way however, that that is by having accurate customer data, and especially their interactions with your business.
Key benefits of having good customer data:
- Decision Making
Having access to quality data about your customer interactions can improve decision making through improvements in accuracy and by providing context. For example, Company A may buy more units from you, but the units that Company B buys may have a larger margin. Targeting your marketing budget at Company B may result in better ROI over the long term. Or perhaps you are looking at Company C and realize that although their sales with you are down, in past years they have been one of your top companies. Wouldn't you like to be able to investigate that further?
In this way data transcends the limitations of human memory and bias, offering a more accurate foundation for business decisions. For instance, knowing the exact figures can change how we respond to requests for discounts or negotiations:
- Pitching for funding or investment
Let's say you have a great new product and that is going to change the world. You see massive potential in it, but investors will not take your word on faith. They want to see hard numbers and maybe even some projections. They want to understand what their ROI will be and when. Having data on your past sales performance and customer base can be very helpful for gaining investment and ultimately achieving the commercialization of your product idea.
- Innovation
Having good customer data can help generate new ideas. You might realize you have had more inquiries from a certain kind of client, or in a certain market than anywhere else. Maybe that gets you thinking about what other needs they might have, and what solutions you could possibly create for them and commercialize.
Data Access and Storage
As a businessperson, you are carrying around a lot of data in your head. However, your brain cannot always function as perfectly as you'd like.
To effectively use customer data, you need to store it in a reliable and accessible format and location. Additionally, having data stored in one place makes it much easier to conduct analysis. There are numerous digital tools out there that can help you do this. Customer Relationship Management systems or CRMs are one such example. Examples of some commonly used CRMs include HubSpot, Salesforce, Monday, and Pipedrive. Many of these tools offer free starter plans, so it doesn't matter how small your business is.
CRMs allow you to create records of prospects, customers, and transactions, and to track all your communication with them in one place. You can assess and analyse how much time, how many touches, and the total amount of resources you are using to make that sale. Additionally, most CRMs offer built in reporting tools. You can compare customers to each other and build profiles of buying behaviour. This in turn can help you optimize your marketing and sales strategies. Remember the questions I posed at the start? Wouldn't it be nice to dip into your CRM tool and answer those questions with confidence?
Finally, CRMs are secure and offer a host of integrations with other common business software, such as accounting systems, email marketing tools, and project management platforms.
Conclusion
The bottom line is this, data is key to economic growth. Embracing the benefits of data and investing in appropriate data management tools is critical if you want to move your business forward. While instinct can be helpful, relying solely on it can lead to poor decisions and missed opportunities. Furthermore, with so many great tools out there, many of which offer free versions, there is no reason to keep missing out the benefits of data.