Cash flow and profitability may be the top focus of small business owners, but analyzing sales data is equally important. If you don’t look at your sales, you won’t be able to spot a trend, remove a product, or boost inventory to meet demand. In today’s world, with sales coming from various channels, understanding your data is more important than ever. If you’re not already tracking sales data for your business, you could be missing a big opportunity.
Small businesses capture a lot of data, and business data can be used to inform decisions. Every time a customer makes a purchase from you, a treasure trove of information is at your fingertips that can inform all sorts of business decisions.
“Omnichannel and digital commerce is so critical,” said Opher Kahane, former vice president and general manager of QuickBooks Commerce. “Business owners need to figure out which products are selling the best. Sales analysis is critical, especially when you start to scale your business.”
Here’s a closer look at the benefits of sales analyses and how the insights they provide can help businesses grow.
Cash is the lifeblood of any business, and the way to generate cash is through sales. When you look at your sales, you gain a better understanding of your current cash position and what it will look like in the future.
“Without taking the time to analyze data around sales, you’re leaving a lot of information out there that would be valuable and useful inside your business,” said Twyla Verhelst, a CPA who leads the Accounting Professionals Program at FreshBooks.
Small businesses sell their products through several channels online, including their own websites and general marketplaces like Amazon. If you don’t track those sales as well as your in-store ones, you won’t be able to identify the areas you should focus on.
Let’s say you’ve been spending your time marketing on Facebook, only to find that most of your sales are coming from Amazon. Maybe you’re also gearing up to order more inventory for a specific product without realizing the demand for it is waning.
“Once you have [your sales data], you can figure out which sales channels to double down on, what marketing to double down on, and which products to double down on,” Kahane said.
Small business owners are crunched for time, with little left in the day to find new customers, let alone pore over sales data. Analyzing sales can help a business narrow their focus, said Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce. He pointed to one company that had been selling directly to consumers and distributors. After looking at trends in its sales, the company realized it would be more successful if it sold exclusively to distributors.
If you analyze your sales, you can track your most profitable products as well as the ones that aren’t moving, identify your most profitable customers, and improve your sales process.
“It’s an important data set, and there is technology that can help,” Sullivan said.
The insights you glean from analyzing sales data can change the trajectory of your business and enable you to take actions that improve your operations.
You can analyze a bevy of sales metrics for your business.
These are just a few of the sales metrics you can track. What makes sense for your business depends on the type of products you sell, the seasonality of your enterprise, and how long you’ve been in operation.
“What gets measured gets improved, which obviously applies to sales,” said Enrique Ortegon, senior vice president of SMB at Salesforce. “These insights can range from which sales rep is most productive, on what days or times you sell most and what you’re selling more or less of, or which promotions are the most successful.”
Knowing you need to analyze sales data is one thing; collecting and actually analyzing it is another. That task can be intimidating for small business owners and may lead to paralysis.
“Before 2020, more businesses got away with success by luck,” Verhelst said. “They made gut decisions that served them well. At some point, it might not serve them well. They could have been doing better had they had additional insight.”
To get over the intimidation, Verhelst said to start with the business systems you already have in place. It could be a point-of-sale (POS) system, invoicing platform or another operating system. The information you can pull from those sources is often enough to inform your decisions. If it isn’t, Verhelst recommends conducting an audit of your tools to identify programs that could provide deeper insight.
When conducting a sales analysis, some businesses do a year-over-year or month-to-month comparison. Kahane said that if your business is seasonal — if, say, you do most of your sales during the holidays — then you want to track sales year over year. If you have no particular busy season, a month-to-month or quarter-to-quarter comparison is probably better. Some companies also track sales data based on the length of an advertising campaign or social media push.
It’s important to analyze your sales data without emotion, according to Sullivan. Even if the numbers are bad, it’s good to have that clear idea of where your sales are and where they’re heading. It’s also a good idea to turn to your personal network, which Sullivan calls the “small business owner’s board of directors,” for advice on what to make of your sales and how you can improve. These are your friends, family and business peer networks that give you advice.
“Small business owners bounce ideas off each other all the time,” Sullivan said. “The most successful small businesses have a board of directors.”
Many sales analytics solutions are on the market at various price points. Here are some popular sales analytics software programs.
It’s hard to make good decisions without context. Sales analyses provide critical information about where the biggest returns on investment are coming from. This allows you to invest in what works and cut what doesn’t. Understanding sales data also means getting closer to your customer base and figuring out what makes them tick. This can inform future marketing and advertising campaigns, which can boost engagement with the content you’re putting out there and drive more sales by targeting the most relevant audiences. Don’t sleep on sales analyses — they have the potential to change your business for the better.
Jacob Bierer-Nielsen contributed to this article.