Know Your Numbers: 4 Keys to Small Business Success

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Just like for your personal health, knowing your numbers (key metrics) for your local business will make sure your business remains healthy.

The phrase “Know Your Numbers” typically refers to measuring your personal health by knowing your blood pressure, weight, cholesterol levels, etc. You and your doctor can use these numbers to make sure you’re healthy and identify early indicators of potential issues.

The same concept applies to your business. Some local business owners consider their business to be a success if their bank account is growing — or at least not shrinking. But that’s the equivalent of saying you’re healthy because you feel good today. Just like for your health, there are key metrics that will help you better understand your business and uncover opportunities and potential issues.

Start Simply

You do not need to become a data scientist to make sense of small business metrics, but it is easy to get overwhelmed. So start simply and build from there.

Find a business intelligence (BI) tool that matches your needs. We’ll use examples from Sprk™ because it is specifically designed to help local businesses optimize their results, but use whatever you’re comfortable with.

You already know your sales numbers, so start by looking at this metric from different perspectives. For example, a “heatmap” graph is an excellent way to visualize your sales by the time of day as well as the day of the week. In the following example, it’s easy to see that the busiest day is Saturday and the slowest hour is 4–5pm on weekdays — perhaps indicating the need to close an hour earlier on weekdays.

Similarly, sales trend graphs often provide great insights, especially when viewed from different perspectives. This next example shows sales on Wednesdays are declining slightly over time, which could indicate a normal seasonal trend or a potential issue to investigate further.

The key is to start by looking at a few key metrics (like Sales and Order Size) to avoid getting overwhelmed and frustrated, and then expand to more metrics as you become more comfortable with your data.

Keep Everything in Context

It’s easy to misinterpret or misuse data, especially when it’s taken out of context. You know your business well, so make sure all metrics are interpreted within that context.

Let’s consider the first example above where 4–5pm on weekdays is the slowest hour. Perhaps this is good because it allows your employees to start pre-closing work and leave a little earlier — reducing payroll costs while still offering convenient store hours for your customers. Or perhaps it would be better to close earlier. Putting the data in context will ensure you make good data-driven decisions.

Keep external influences in mind as well. For example, COVID-19 caused Order Size to increase for many small businesses as consumers bought larger quantities to reduce the number of trips outside the home. The Order Size then declined as life slowly returned to normal. A decline in this key metric is usually a negative indicator, but an external factor like this explains why it might not be a cause for concern in this situation.

Similarly, a major retailer of baby cribs saw a sudden drop in their crib sales some years ago and didn’t know what to do. Based on data from a market research firm, they discovered crib sales were down for all retailers, not just them. This market context prevented them from making a bad business decision (heavy discounting or discontinuing crib sales). Crib sales returned to normal within six months.

Keep Asking “Why?”

Analytics are only useful if you can identify why something happened and apply that insight to improve future performance. Understanding why crib sales dropped (an unusual, short-term drop in demand) allowed that retailer to make informed decisions about its future. Not understanding why could have led to disastrous results.

As you examine your performance data, keep asking yourself why something happened—regardless of whether it was a positive or negative change. Negative results tend to draw our attention, but there’s a lot to be learned about why performance improved as well.

For example, price changes can obviously affect sales. In the graphs below, it’s not clear why cappuccino sales (as a percentage of total sales) were flat or trending slightly up after the price increase while latte sales were trending down. Perhaps one was still favorably priced compared to competitors while the other became overpriced. Digging deeper into the “why” will help determine if additional price adjustments are needed.

It’s a never-ending process, but that’s part of the fun of owning a small business. It’s a series of challenges that push you to find new and innovative ways to create great products and customer experiences. Continually asking “Why?” will often identify new ways to make your business special.

Trust Your (Informed) Gut

Few local business owners have a business degree, but they do have an intense passion for what they’re selling — whether it’s coffee or antiques or fashion or whatever motivated them to start their business. As a result, you are a subject matter expert for your business and will have good instincts for how to run it.

Analytics complement your expertise by providing insights that may not be obvious from just observing the day-to-day business. Going overboard with analytics is just as bad as ignoring analytics. It’s the balance between expertise, instinct and data-driven decisions that will be the key to your business’s success.

Next Steps

Get to know your numbers by finding a business intelligence tool that supports your business needs. Big retailers have teams of data scientists that do this analysis, but a data-focused mindset – along with your expertise and instincts – can give your business a big edge.

Next Up: How POS Reports Can Lead to Bad Business Decisions

All screenshots are taken from Sprk™ using either fictitious data for illustrative purposes or real data used with permission.