For many small business owners, interpreting data and tracking analytics is a daunting task. Between keeping the lights on, juggling rosters and managing inventory, there seems little time left to eat and sleep — let alone wade through a sea of numbers.
But leveraging and understanding analytics is crucial for a business to grow and develop. Data and analytics tell you a story about your business: without it, you’re in the dark.
Why metrics matter
Harnessing data and analytics and performance metrics can tell you what’s working in your business — and what’s not. You can then leverage these insights to identify patterns, forecast trends and inform future business decisions.
“Data is there to give you an objective viewpoint of your business, so you can work out trends and put actions in place to optimise your business processes,” says Trent Innes, managing director of Xero Australia and Asia.
If you’re not using data to inform your next move, you could be falling behind your competitors. According to Deloitte, Australian SMEs with advanced levels of digital engagement are 50% more likely to be growing revenue compared to SMEs with basic levels of digital engagement.
But there’s a problem. In its pure form, raw data can be overwhelming. Deciphering meaning from numbers on a page is difficult without knowing what you’re looking for. If you see raw data as a sea of numbers, there are a few tips that can help you decipher what it means and how to apply it to your future decisions.
Setting key performance indicators to track
A simple way for small business owners to employ analytics is to set and track some key performance indicators (KPIs).
For Coffee Club franchisee Terry Fulton, tracking KPIs is essential to meet costs.
“Running the business to the numbers is a necessity and our KPIs need to be constantly monitored,” Fulton says.
“It’s really important that when we are not meeting our revenue KPIs that we know early so we can make adjustments.”
For Innes, cashflow-focused KPIs are the most important for small businesses to track.
“It’s vital that this [cashflow] is regularly tracked, as poor cashflow is the number one reason small businesses fail.
“A cashflow forecast is also important, as it predicts how much money you’ll have in the bank time based on when you expect to be paid and when you expect to have to pay bills or staff,” Innes says.
There are many more KPIs that small business owners can track. Rob Hartnett, in his book Small Business, Big Opportunity, sets out seven key measures of success.
- Revenue. (How much? From where? Are there any trends?)
- Cost of sales.
- Marketing customers. (Where are they are coming from? How did they find your business? How many bought, and how many viewed an item but did not buy?)
- Social media growth and conversion to customers.
- Average sales time.
- Cashflow from debtors and creditors.
- Margins and net profit.
Learning from the past
Extrapolating historical trends into the future can also help you set realistic goals, Innes explains.
“A great example of this is looking at the seasonality of cashflow. If the data shows you that your sales figures typically drop in January, you can reconsider at what time you make new investments, how you can pre-prepare for this period, at what point you take on casual employment, to alleviate the pressure during this time,” he says.
Small businesses can also track their customer’s historical payment times to see whether their processes are effective — or whether there’s room for improvement.
“Your data can tell you if client payment times are delayed and consistently fall outside of your payment terms,” Innes says.
“If so, you can put proactive steps in place to improve the payment process, such as payment gateways, automatic reminders or part-payments for work that requires upfront costs,” he adds.
Tracking the above metrics and KPIs will help you understand what’s working in your business and identify areas for improvement and growth.
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