How to Use Your Business Data for Smarter Decisions
MAKING DECISIONS is hard. In fact, there’s a cruel irony in our inability to make decisions.
According to a study conducted at the University of Minnesota, “making choices leads to reduced self-control (i.e. less physical stamina, reduced persistence in the face of failure, more procrastination, and lower quality and quantity of arithmetic calculations)”.
It doesn’t matter if we are trying to figure out what to eat for dinner or deciding where to spend our marketing dollars. We need to use our limited energy making the choices that matter.
Lucky for us, we can take advantage of our analytics data to help us make better business decisions.
The data will not make the decision for you, but it can help you narrow down your choices and provide you with the peace of mind knowing that you aren’t just guessing what to do.
However, before we can start using our analytics data, we need to set it up to be digested properly. This means cutting through all the noise and figuring out what data is relevant to our business and how to track it.
It all starts by translating our business goals into KPIs.
Read on: 5 Good Reasons You Should Use Fewer Business Tools
Learn to translate business goals into actionable KPIs
The first step before you even set up an analytics tool is to figure out what you need to track.
It may sound obvious and yet most companies don’t spend enough time in this step. In fact, this is the number one reason that Gallup, the company behind opinion polls, lists for why your analytics efforts could be failing.
Let’s start by figuring out what is important to your business. For the sake of this example, let’s stick to the next six months as our timeline.
Your business goals should be clear and quantifiable, e.g.
- Increase revenue by 20%
- Increase our blog subscribers to 4,500 from 3,000
- Increase our sign-up conversion rate to 15% from 12%
These goals are clear and pass or fail. This means that we could look back in 6 months and instantly know if we hit them. There’s no ambiguity in these goals.
Once you have your business goals, we can move on to figuring out which KPIs or metrics you need to be able to track progress on these goals.
Let’s take the second goal listed above: Increase our blog subscribers to 4,500 from 3,000.
To track our efforts at improving this goal, we need a few metrics that correlate with the outcome that we are looking for. For example, the following metrics correlate with more blog subscribers:
- Website Visitors
- Average Time on Post (how long visitors spend on a given post)
- Opt-in Rate (how many visitors become subscribers)
- Blog Subscribers
We can then focus on improving these 4 metrics above everything else. This means driving more traffic, writing posts that readers spend more time on, and creating better freebies to increase our opt-in rate.
This also means that we can ignore 90% of the metrics that a tool like Google Analytics offers. Instead of getting lost or overwhelmed, we find our focus in what matters.
If you’re not sure what metrics correlate with the outcome of your business goals, don’t worry. Take your best guess and calibrate as you go on. If you’re finding that a certain metrics has nothing to do with your business goal, simply remove it and find a better one.
Read on: How Data Can Help Understand How Your Employees Work
Setting up a simple system to track your KPIs
Now that we know what KPIs we will be tracking, we need to set up a way to track our progress on these metrics.
I’m a big fan of simple solutions (which can always be upgraded), and I recommend starting with a spreadsheet that summarizes your KPIs on a weekly basis.
It’s important to understand why “simple” is just what we need at this point, instead of chasing complexity.
Carl Richards, a financial columnist at the New York Times, has talked about a similar phenomenon when it comes to financial investing.
His article Why We Fear Simple Money Solutions gives three reasons why we tend to reject seemingly “simple” solutions:
- We don’t believe they will work
- We think simple means easy
- We prefer to stick to tradition
Using a spreadsheet means you can streamline your KPIs quickly to get started. You can worry about getting everything perfect later on.
In our example, the spreadsheet will look something like this:
You notice that each column is a week which means that we can look at how our KPIs are changing week over week. It also means that we can experiment with something new every week and then easily track the results of those experiments.
Over time, you will develop a sense of what is working and what isn’t. In our 6-month example, we could run 24 different experiments to figure out what will increase our KPIs and helps us to hit our business goals.
Read on: How to Root Out Bias from Your Decision Making Process
Hypothetical example on how to use your data
Let’s have a look at how you would use marketing KPIs and data on a regular basis to make better decisions.
Let’s assume that on your first week, you had these numbers:
- Website Visitors: 1000
- Average Time on Post: 3:35 Minutes
- Opt-in Rate: 2.50%
- Blog Subscribers: 3000
At any given time, we could be trying to improve any of these KPIs. However, we don’t want to do that. We want to focus on improving the KPI that will give us the biggest boost or improvement.
This is sometimes called the “Big Win” mentality – you focus your energy on improving the 2-3 big things instead of trying to 20 little things.
Larry Kim from Wordstream once said that “small things with little impact are like rearranging deck chairs on the Titanic.”
Looking at our first week’s numbers, our opt-in rate is a bit low. We could work on doubling the growth by improving the freebies that we are giving out to our website visitors. We can also ignore the “time on post” and “website visitors” for this week. This is to help us avoid the “paradox of choice” that comes from trying to tackle multiple things at once.
An improvement to 5% would mean that we could get 50 new subscribers (instead of 25) every month. This won’t get us to 4500 in 6 months but it can be crucial if we increase our website visitors as well (in another week).
Taking this weekly approach, we could focus on making small but important improvements that will compound in the weeks to come. Every improvement builds on the last, getting you closer to your overall goal of 4,500 subscribers.
This idea is similar to compound interest. Initially, the interest might be quite low but it eventually gives you incredible returns over the long run.
Think of your weekly improvements like compound interest. Each small improvements builds on the last.
Case studies on how companies use data to make better decisions
When it comes to companies using data to make better decisions, Google is one of the best. One of their many initiatives is their “People Analytics” program. This program studies everything related to employee performance and aims to come up with recommendations for how to improve their workplace.
After collecting data through surveys, and interviews, they determined that “great managers” made a big difference in the overall productivity of their teams. This sounds obvious, but they went one step further and created a list of attributes that great managers shared. This made it easier for people to understand what qualities they needed to develop to improve their teams.
Another great example of a company using data to make better decisions is Southwest Airlines. They use their data to improve customer service and offer personalized services.
One of their initiatives involves recording the one-on-one interactions they have with customers and use speech analytics to find ways for improvement.
Remember that your business data isn’t just meant to inform you. Your data is meant to help you make better decisions on what to focus your time or energy (and what to ignore).
To start using your company’s data to its full potential, you’ll need simple systems to track your improvements. Keep track of your results are changing over time, and use the insights for smart decision-making.
Tracking your business metrics doesn’t have to be complicated. At the beginning, your can simply use a spreadsheet or analytics tool that you’ll check on a weekly basis.