You can collect tons of data and metrics about your business, but you can quickly experience information overload without understanding what to do with all those numbers. Keep in mind that people can make a full-time career out of analyzing data, so don't panic if you're confused or wading knee-deep through reports. All you need is a little help finding the data that actually show useful, actionable information.
Data is unpredictable by nature, but you can learn to interpret it. The key is to focus on interpreting the data that matters. As a small business owner, data that you can apply to your entire company should make you sit up and pay attention. Data that can only be applied to certain projects should take secondary priority.
Information overload is caused by too many narrow data points and variables. With too much information at hand, it's hard to keep track of what every number means and whether the big picture looks good or bad. We'll walk you through some of the crucial data points you should consider and how you can apply them to your business strategy.
Return on Investment
You can calculate the return on investment (ROI) of your entire company to calculate profit, as well as calculate it for individual departments or projects to understand which strategies prove beneficial and which need to be cut.
To calculate ROI, you add up the entire cost of the project and subtract it from the profit of that project. If the result is negative, you lost money. If the result is positive, the project earned money. It's up to you to decide if it earned enough, however. Breaking even does not represent growth, and most business owners want to grow.
Regularly track ROI to keep a realistic perspective of the worth of each project. If your marketing department had a brilliant idea for a marketing campaign but it didn't bring in the desired number of customers and sales, don't repeat the campaign. Or if you launch a new app and it turns out to be less popular than market research suggested, be careful about investing more money into its development. At the same time, don't be too quick to nix a project in the early stages because it hasn't shown promising ROI, because it can take time to see results.
Profit Over Time
Calculating profit is an essential KPI to track because it's the entire purpose of your business. As a small business owner, your business profit directly affects your paycheck. That's a great motivator, but why should you worry about profit over time instead of enjoying the fact that you make any profit at all?
Profit over time shows you trends in your profit. If you're still making a profit each quarter but the overall profit demonstrates a steady decline, you need to take action before you're in the red. For example, you may need to re-evaluate your marketing strategies, analyze new competitors, figure out if you're not connecting with an important demographic and why, or whatever other factors might affect your bottom line.
Profit over time either gives you a warning or gives you a thumbs-up. If your profit is steadily increasing, you're on the right track with all of your efforts and need to keep it up. Increasing profit also shows that you can consider reinvesting money into your business in order to expand.
Product Turnover Rate
Product turnover rate tells you whether your products are flying off the shelves or collecting dust. Obviously, you want products to leave your store. But you also want to be able to keep a proper supply in order to keep up with the demand.
Therefore, evaluating your product turnover rate can tell you at a glance whether business is good or stagnant. If you have a low product turnover rate, it might be time to have a sale to get rid of the excess, and then order a smaller amount of that product to restock the shelves.
But you should also take the time to evaluate other reasons why your product turnover rate may have suddenly plummeted. Do you have a new competitor? Did the economy go sour? Product turnover rate is a fantastic key performance indicator to track and evaluate.
Sales Data: Beware of Information Overload
Sales data can quickly lead to information overload if you're not sure what you're looking for. The most important thing to decipher is what products are most popular among your customers. Which products do you sell more than anything else? Make sure you keep a steady stock in order to keep customers happy, and you might even consider a slight increase in the price in order to bring in more revenue.
On the other hand, you also need to know which products aren't bringing in their fair share of income. However, it's important to look at sales revenue in relation to product turnover rate, because neither gives a full picture. For example, product turnover rate may be very low for an expensive product, but it's worth keeping it on the shelf for the occasional buyer because it brings in decent revenue.
Of course, it's important to also look at the products that have average sales figures, especially over time. Just as profit over time can alert you to alarming trends in your overall business popularity, product sales over time can indicate whether you need to consider replacing an item with a more competitive model or stop carrying it altogether. On the other hand, positive sales trends can help you prepare to stock that item for the busy holiday season.
Number of New Customers and Customer Retention
Compare the number of new customers you acquire versus the number of repeat customers. This data set can show you whether customers feel loyal enough to your brand to become repeat customers. If you have a low number of repeat customers, they may have taken their business elsewhere. But interpret the data wisely before you go into information overload: not every product or service can cater to repeat customers.
If you do offer a product or service that should be able to entice customers back for another purchase, a low customer retention rate shows great opportunity for increasing your sales. You can implement follow-up strategies or re-marketing techniques to remind them about your awesome products and deals, for example.
The reason it's so important to pay attention to customer retention is that these are incredibly cost-effective opportunities. Think about all the money you pour into attracting potential customers and convincing them to make a purchase. Once they make a purchase and have a positive experience with your company, they're likely to return. This time, instead of investing the same massive amount of resources into attracting their business, you just have to give them a little, relatively inexpensive, nudge.
Customer Acquisition Channels
How do customers find out about your products or services? Knowing which marketing campaigns or acquisition channels result in paying customers and which result in dead-ends will help you refocus your energy and resources toward what works.
For example, if most of your clients walk in off the street without having ever seen your paid Google Ads, you may want to focus more on local signage to take advantage of the traffic going past your store every day. On the other hand, if you're running paid Google ads and paid Facebook ads at the same time, it's helpful to know which of these led to more conversions. In the future, you can allocate more funds to one avenue versus another.
Organic Web Traffic
Taking a look at how many people visit your website by searching for relevant keywords can help you understand how well you're dominating your industry. Your organic web traffic shows you the number of visitors who found you through search results. You can also look at other data related to organic web traffic, but the potential information overload can be reduced by simply looking at the overall number of organic visitors.
If you find that the number is quite low, you have work to do. You need to design a website that can attract visitors through organic searches. This process is called search engine optimization, and the initial setup is the most time-intensive aspect. Eventually, it can even start to pay for itself. It's a smart strategy to make your website easy to find.
Customer Reviews and Complaint Tickets
You cannot rely solely on sales numbers to tell you whether or not people like your product. In fact, customers will happily (or unhappily, depending on the circumstances) tell you how they feel about your product, your customer service, your brand in general and anything else related to their experience.
This feedback represents vital information that you can't get anywhere else. Don't feel shy about asking for it. Incorporate a customer survey into your sales process to try to collect as much information as you can. If there's a weakness in your process or company, customers will tell you about it. If you're doing things differently from your competitors and it's a good thing, they'll tell you about that too.
To quantify this data, you can track the number of positive reviews versus negative reviews. Also, track the number of complaint tickets your customer service department receives. Another good metric that points to client satisfaction (or lack thereof) is the number of product returns.
Employee Turnover Rate
Your employee's happiness speaks volumes about your company culture. You can track this through employee surveys, but your employee turnover rate also tells a story. Retaining good employees is in your best interest. Processing applications, interviewing candidates, on-boarding new employees and overseeing their training takes time and resources away from other areas of your business.
It's a little different to go through the hiring process if you're expanding your scope and need to add more team members. But if you're replacing team members, the cost adds up. It's especially painful to lose good employees who were knowledgeable, efficient, proactive and likable.
What's causing these employees to move on to greener pastures? You need to evaluate how well your company treats its employees. If you gain a reputation for offering low pay, poor benefits and demanding conditions, you also run the risk of losing potential customers. Always keep a finger on the pulse of your employees' happiness.
Avoid Information Overload Altogether
The above KPIs can prove to be a great starting point to focus on, but don't discount the insight that can be gleaned from narrower data points from specific projects or departments. If you're worried about information overload, avoid it altogether by hiring a data analyst to walk you through the numbers and assist with interpretation.