Data Analytics (DA)
DA can help businesses better understand their customers, target their advertising, spot trends and harness opportunities which drives profit. The benefits of DA cannot be accessed without the proper data analytical tools, processes, and expertise. While raw data has a lot of potential, you need DA to unlock the power to grow your business!
On May 6, 2017, The Economist Magazine wrote that “Data is the New Oil”. i.e. the impact that the commercialization of oil had on the world economy during the past 150 years, will be matched by the impact of data today.
Most industries have access to ERP or CRM software, which they use to engage with their customers, suppliers and employees. The data that is captured in this software, is where the greatest potential value lies waiting to be unlocked.
Applying data analytics to the sales and marketing aspects of a business provides insight into the relative costs of customer acquisitions, profitability of customers by segment, and how to focus the strategy for revenue growth. In addition, KPIs can be created and targets can be set, that align with the business’s overall budgets and cash projections.
Access to such data was previously either not economic or readily available for SMEs, because CRMs were not so user friendly. Businesses needed to employ external IT specialists to find and extract the data, then create reports and provide analysis.
In accounting terms, data analytics is essentially the application of management and cost accounting principles such as expense recovery and efficiency not just to the cost of sales but also to sales and marketing costs.
The ability to identify and model KPIs based on the raw data stored in the industry software, then forecast, test and report on future activities, is the key to capitalising on Data Analytics. However, the likelihood is that those who will have the expertise and capability to tap into this will be in the minority.
DA & Accountants
With the growth of low-cost cloud computing, offshore processing, and artificial intelligence (AI), accountants value proposition is shifting from preparing accounts (decreasing margin) to becoming analysts and engineers of a business DA. This touches on KPI management, sales growth, organisation performance and strategic reporting; exciting times indeed!
AI is changing the landscape for bookkeepers and accountants. Previously, they have been able to be paid for the manual processing and precise classification of data. Technology has enabled software to automate much of this processing and classification work.
The accessibility of cloud software is accelerating the pace of change. To make things worse, the reducing cost of software is squeezing the margins of professional service providers. Many accountants may soon have no value proposition to offer. To be paid, accountants must find new value propositions.
However, with every threat comes an opportunity. Accountants must look to offer value through advising businesses. They will look to their cloud accounting software for the data to form the basis of this advice. Conventional accounting reports are in their wheelhouse. However, when they all eventually work this out, the marketplace will become very crowded among traditional accountants.
And to be honest, unless a business is manufacturing, or selling a variety of products, the data available in the financial software is fairly limited. It doesn't go much further than a budget variance report, gross margin analysis and cash flows. It's not to say these are not useful, but cloud software is becoming so sophisticated that the programmers will even automate this reporting; again at the expense of the accountant/adviser.
Accountants who are not able to take advantage of this opportunity will likely find themselves in a very crowded and competitive market with all the other accountants who will be analysing data held within the accounting software. Not only that, but this data generally has less potential for adding value to a business (when compared to the CRM data).
A threat is also an opportunity: As the competition heats up in this space, accountants who are creative and think outside the square will stand out from the crowd. How will they do this? By targeting - not just the accounting data - but the data in businesses’ CRM software.
Summit Consultants & DA
At Summit, we have developed a structured approach to DA that focusses on sales and productivity. It’s a commercial approach that methodically collects and analyses data containing key customer activity, expense, and business pipeline potential. This not only identifies quick wins but also sets up a strategic framework to grow.
We have been analysing data for several our clients with the overall objective of improving the profitability of their businesses. We would classify our focus as being on three key areas:
i) Client/customer acquisition & retention
ii) (Resource Productivity & Capacity
iii) Business Pipeline
(i) and (iii) relate to sales: generating sales from new and existing customers; (b) deals with the product, efficiencies and service delivery aspects of the business.
By studying these aspects collectively, we can determine the relevant KPIs that go into each of these aspects, and their impact on profitability.
Where there is deliberate action to acquire leads and new customers, we analyse the return on investment of different sales channels (cost v revenue) in generating leads and comparative lead conversion rates. We study and make enquiries about leads that were not converted. This very often feeds into the business’s “pipeline”. The pipeline can be made up of leads, customers and sales, or all three of these.
With respect to revenue, we categorise customers in the standard format of say A, B, C or platinum/gold silver etc. We identify which characteristics generally differentiate customers in each segment, and then try to apply to all customers, the positive aspects that apply to, and work for, the best customers.
We devise the KPIs based on the above statistics, locate the relevant data in the CRM and extract it, then report and monitor the KPIs; always reviewing, testing and fine tuning.
In relation to productivity, we look at the key processes of service and product delivery, to identify where labour can be eliminated or reduced by efficiency (fewer processes), or by automation using technology.
Integral to this is using the premium skills of employees optimally i.e. employ less qualified staff to support premium staff, leaving premium staff to specialize on the areas of their expertise. This may include having your best and most productive people training others, which may initially seem counter-productive but produces long term benefits.
It may also involve creating core units of staff or teams, who work collaboratively to deliver the services and products. Core units can then be repeated and then are scalable as the business grows. Having your best performers train others enhances long term scalability.
Data science encompasses preparing data for analysis which includes cleansing, aggregating, and manipulating the data to perform advanced analysis. The analysis follows strict scientific protocol that ensures high value insights produced from trusted output. Data analysts can then review the results to uncover patterns and enable business leaders to not only draw informed insights but act either operationally, tactically, or strategically.
Summit takes a scientific approach to the data. We collect raw data and look for repeatability and verifiability. Only when data is confirming a strong trend, will we make recommendations for action. Business owners must first have the confidence in their own data to make spending decisions.
The data often indicates trends or cause & effect. We react to what the data tells us. Sometimes we need to evolve a theory and test that against the data (AB testing), before drawing any conclusions.
We will apply testing on a controlled basis, to eliminate extraneous factors on any new initiative, to verify our findings. We will then run discrete pilot programs to test the findings, before rolling them out on a larger scale.
Ideally, businesses will only pay for testing and initiatives from current monthly profits, in preference to using loss leader strategies to drive growth for future profitability.
The key to a sustainable business is to build the returning customer base who are serviced rather than pitched to. To identify and nurture, analysis is required far beyond the capacity of accounting systems, advertising campaign data and standalone CRM’s. DA is crucial to ensure all data sources are utilized and converted to business building blocks to build customer return business.
A sustainable business will have a core of long-term customers who repeat buy from it. Otherwise, the number of potential customers is finite and the cost of constantly acquiring new customers is prohibitive. A business is sustainable when it has sufficient repeat business, that acquiring new customers is discretionary, and can be confined to replacing normal churn.
For businesses that have long term and short-term customers, the essential difference between those customers is the nature of the relationship the business develops with each of them i.e. long term customer (relational) vs short term customer (transactional).
Therefore, we concentrate on helping businesses to win customers and retain them for longer periods. We make this the overriding strategy, and then apply tactics to achieve it. Without an overriding strategy, all activity becomes tactical: it is ad hoc, disconnected or piece meal. Where there is a strategy, the tactics become focused, integrated and cohesive.
Sales or Marketing?
DA provides the perfect base to set a sales and/or marketing strategy. It allows you to target the right audience with the right media channels at the right time to gain traction. It also helps you build valuable “below the line” leads that can be part of your communications database on EDM, social or blog. It also helps discussions with strong existing relationships where your knowledge of your client’s needs is well “ahead of the curve”.
You can ask 10 people whether they think a piece of advertising is sales or marketing, and you will get 10 different answers. The confusion comes because there are several activities that are both sales and marketing. It is worthwhile discussing because marketing, strategy and relational customers tend to fall on the one side, while sales, tactics and transactional customers tend to fall on the other. Of course, there is some overlap. We just need to know which we are trying to achieve and why.
For a working definition of sales and marketing, we would posit the following:
Sales is advertising that is directed to the general public via the various media, letter box drops etc, and is tactical in the sense of driving a specific campaign. Initially it will generate leads that create sales transactions.
Marketing is more targeted and specific to a demographic, including existing customers. It will tend to be more ongoing or continuous and use targeted means such as brand management, events and email campaigns.
Tactics such as account management, tele sales and brand advertising in the media may fall into both camps.
DA focuses on the tactics employed in both sales and marketing. Why is a distinction important?
Advertising that is directed to immediate product sales can best be handled by a sales team and/or a digital advertising specialist. It’s about running a campaign to generate sales over a finite period, and can be more tactically driven. Advertising that is more marketing oriented and directed to customer acquisition and retention, requires a longer-term strategic approach to overlay the tactics.