How to Leverage Data to Increase Profitability
The most effective leaders today understand that business decisions cannot be made in a vacuum. In order to put your business on a long-term path toward continuous profit improvement, your choices must be based on real, actionable data. Most businesses understand the importance and value of good data but have not gotten to the maturity level where they have these analytics at their fingertips.
Proactive, data-driven decision making allows businesses to respond quickly and confidently to market volatility and economic uncertainty. Without appropriate data measurement and analysis, companies may continuously make uninformed decisions that negatively impact their bottom-line profits. More so, without a repeatable process, companies risk seeing data tell a different story every time.
These factors can lead to many companies struggling to make sense of their data and, in turn, impede their ability to understand the why behind their fluctuating profits.
When fully understood and leveraged, good data drives multiples and improves profits year after year. In this article, we’ll break down the basics of data measurement and analytics before diving deeper into how more in-depth data analysis can uncover actionable insights into common concerns like price leaks, cost creep, and customer churn.
Common Barriers to Successful Measurement & Analytics
It’s important for companies to have a clear path toward making sense of their data in order to achieve their strategic goals. For many businesses, however, their data is spread across multiple ERPs and CRMs, and as a result, it’s virtually impossible for them to get the full benefit of data measurement and analysis.
There are multiple reasons why a business may have scattered sources of data:
- Mergers or acquisitions that resulted in different systems from legacy business practices
- Business growth may have resulted in new systems or processes to be implemented in different departments that have not yet been integrated into a central system
- Outsourced data inputs which may require an additional process or system
Whatever the reason, disjointed and unstructured data can lead to a lot of manual work, which makes it difficult to get answers when you need them most. INSIGHT’s approach to data analysis eliminates these common obstacles by consolidating all your messy, unstructured data and quickly turning it into clear, actionable knowledge to improve profits.
Measurement & Analytics Basics
The key to measurement success is having a goal-driven approach. Data measurement and analysis enables businesses to make more strategically-guided decisions, increase efficiency, optimize performance, and improve profits. When leveraged correctly, data can uncover valuable insight on common pricing topics, such as:
- Price impact: Are price changes yielding the expected results?
- Price creep: Are cost changes outpacing price changes, resulting in margin erosion?
- Margin variation and outliers: Are products/services being sold without a structured strategy driving price variation?
- Customer churn: What is causing sudden, unexpected revenue and/or volume reduction?
- Competitive threats: How to turn the possible loss of business into a strategic opportunity?
The information garnered from data analysis doesn’t stop at the basics. There is also ample opportunity to gather valuable information on more in-depth, goal-specific topics, like:
- Price performance: How are certain regions, product lines, salespeople, or customer end markets responding to your pricing actions? What actions should be taken to drive better performance in those groups?
- Leaks management: What programs and policies inform how to price factors such as freight, special discounts, rebates, or other cost-to-serve elements? Are those policies being adhered to, and are they leading to desired results across regions, product lines, and customer groups?
- Win/loss management: Which end markets, regions, customer groups, or product lines are you winning or losing with, and do you have the optimal reason codes to track and understand why? How should your pricing model be adjusted to adapt to those factors?
- Price sensitivity: Do you understand what elements of your business your customers value the most, and which markets will be more or less sensitive to price changes? How frequently and at what level of confidence do you measure these factors?
This type of in-depth analysis elevates your ability to understand how your pricing decisions are affecting your business. On the surface, a certain set of results may seem to tell a story that, when dug into further, is actually inaccurate and may drive the wrong behavior.
Expanding and enriching your measurement and analytics abilities not only provides access to what’s going on, but drives confidence in the numbers and creates opportunities to respond quickly and in a manner that directly impacts your bottom line and desired results.
Actionable Insights to Increase Profitability
Data exists in all areas of your business; the key is knowing how to utilize it to your advantage. It’s one thing to have someone come in and help organize messy data, it’s another thing to analyze that data to develop a real, actionable strategy for continuous profit improvement.
The data science experts at INSIGHT can take the research gathered during the discovery process and meticulously organize and interpret the information so you know exactly what is happening in your business. From there, INSIGHT works with you to address potential opportunities within your strategy to drive steady, measurable margin improvements.
Whether your company is experiencing a drop in price performance or is struggling to lock in an effective discount process for your sales team, data can help take the guesswork out of pricing actions:
| Topic | Actionable Insights |
|---|---|
| Price Performance | If price performance is down, check to see if it’s occurring in specific products lines or regions. Mass pricing actions unevenly affect customers and your results will suffer. Instead, consider tweaking the factors of your pricing model – customer group, region, competitiveness, etc. – and test how that affects results. |
| Leak Management | Measurement may show that there are high levels of discount variation. If certain salespeople are giving larger discounts than warranted, seek to understand why. It could be that a regional list price adjustment is warranted, or, if win rates are successful with other salespeople, it might be that stronger accountability processes and approval workflows are needed to secure compliance. |
| Win/Loss Management | You may find that the highest win rate % is correlated to usage of the recommended price. If this is the case, seek out regions where price recommendations are not being used and stand-up compliance processes to enforce. If win rate is lower than expected, utilize data science analytics to test your pricing model factors and make fine-tune adjustments in affected areas. |
| Price Sensitivity | If volumes are decreasing, check to see if it’s occurring in specific product lines, regions, or end markets. Before taking any pricing actions, determine the root cause. For some customers, a volume decrease may be a seasonal occurrence. For others, price negotiations or a market research study may help uncover how your product or service’s value stacks up. Mass actions without a deeper understanding can negatively affect your bottom line. |
Start Understanding Your Data
Data allows organizations to assess the performance of their offerings relative to factors like customer demand and marketplace opportunities. Companies can use the insight gathered from data measurement and analysis to adjust current and future business practices for improved profit.
If you aren’t sure what your data is saying about your business, INSIGHT2PROFIT can help you gain access to, interpret, and prioritize quantifiable opportunities for growth within just a couple of weeks. From there, our experts help implement your tailored solution and continuously monitor business and market conditions to adjust your pricing strategy for long-term growth. Contact us today to start understanding your data.