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Why Analyzing Sales Data Is Important for Small Businesses

Donna Fuscaldo
Donna Fuscaldo
Senior Finance Writer

Poring over sales data may not be at the top of your priority list, but the information you glean from it can helpyou grow and improve your business operations.

  • Sales analysis is an important aspect of running a successful business.
  • Through sales analytics, you can decide which products to focus on, where to sell and how best to reach customers.
  • Many sales analysis tools exist to help small businesses improve and grow their businesses.
  • This article is for small business owners who want to learn how to glean information from their sales data.

Cash flow may be the top focus of small business owners, but analyzing sales data is equally important. Without looking at your sales, you won't be able to spot a trend, remove a product, or boost inventory to meet demand. It's increasingly critical in today's world, with sales coming from various channels.

"In this COVID era, omnichannel and digital commerce is so critical," Opher Kahane, vice president and general manager of QuickBooks Commerce, told Business News Daily. "Business owners need to figure out which products are selling the best. Sales analysis is critical, especially when you start to scale your business."

Why should you track sales analytics? 

Small businesses capture a lot of data. 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. Sales data is among the top data sets you should analyze, for a bevy of reasons:

1. It can help you improve cash flow.

Cash is the lifeblood of any business, and the way to generate cash is through sales. By looking at your sales, you get 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 heads up the Accounting Professionals Program at FreshBooks.

2. It informs sales and marketing decisions.

Small businesses are selling their products through several channels online, including their own websites and general marketplaces like Amazon. Without tracking 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. 

3. It can help you focus.

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.

By analyzing your sales, you can identify your most profitable products and the ones that aren't moving, your most profitable customers, and potential sales opportunities.

"It's an important data set, and there is technology that can help," Sullivan said.

4. It can improve your overall business.

The insights you glean from analyzing sales data can change the trajectory of your business, enabling you to take actions that improve your operations. [Need a CRM to track customer and sales data for your business? Take a look at the top CRM software we recommend for small businesses.]

Key takeaway: Analyzing your sales data can help you protect your cash flow; make informed decisions on products, marketing, and outreach; and see when it's time to pivot and how to improve your overall operations.

What are the types of sales analytics to track?

You can analyze a bevy of sales metrics for your business.

  • Sales growth: This metric tells you how your business is performing compared to a previous period, such as a quarter, a month, six months, or a year. It will show you if sales have grown, declined or remained flat from a prior period.

  • Product performance: By using sales data to analyze product performance, you can learn which products sell well and which don't. You can learn the favored color, type, or time of year for certain products. This metric can tell you if you should order more or scale back inventory, or if you should focus on one product over another.

  • Sell-through rate: This data set is handy for managing inventory. It tells you the amount of inventory you've sold in a month compared to the inventory you have on hand. That data can inform your sales strategy.

  • Lead conversion rate: Customer acquisition costs can eat away at your profits, especially if it takes a long time to convert a prospect into a customer. Through your sales data, you can track your rates of converting leads. If it's taking too long, you'll know you need to tweak your customer acquisition efforts.

  • Sales by channel: E-commerce has exploded during the pandemic, forcing business owners to sell via multiple channels. By tracking the different places sales are coming from, you'll get a better sense of which channels to focus on.

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."

Key takeaway: Some key sales metrics you can track to improve your operations are your sales growth, product performance, lead-to-conversion rate, sell-through rate, and sales by channel.

How do I conduct a sales data analysis?

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, leading 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."

1. Start with what you have.

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 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. 

2. Analyze sales based on cycles. 

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.

3. Tap into your circle for help.

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."  

Key takeaway: Analyzing your sales data can seem intimidating, but it doesn't have to be. Start with the systems you have and build from there. Compare sales data over different time periods, and seek advice from other small business owners. 

What are some sales analytics tools to consider?

There are many sales analytics solutions on the market, at various price points. Here are some popular sales analytics software programs on the market.

  • SAS: A leader in data analytics, SAS has been helping businesses gain insight from data since the 1970s. Through its sales analytics tool, you can easily analyze sales and engage in forecasting.

  • Salesforce Essentials: This is a CRM for small businesses that lets you manage your contacts and leads, analyze sales data, and forecast. It is simple to set up and can scale with you as you grow.

  • FreshBooks: This accounting software helps small businesses manage their financial operations and integrates with a lot of popular CRMs, including HubSpot.

  • HubSpot Sales: This software brings all a small business's data into one easy-to-use platform, which you can use to analyze sales, create email templates, and track your overall business performance. You get access to free tools and can upgrade as your business grows.

Key takeaway: You don't have to go it alone when analyzing sales data. Some of popular software solutions are SAS, Salesforce Essentials, FreshBooks and HubSpot Sales.

Image Credit: fizkes / Getty Images
Donna Fuscaldo
Donna Fuscaldo
Business News Daily Staff
See Donna Fuscaldo's Profile
A lifetime New Yorker, I am a veteran finance and business journalist that has contributed to several national media outlets including Forbes, Investopedia, and Bankrate.com. I have spent my career providing consumers and business owners with advice and guidance to help them navigate the world of finance. As a senior finance writer, I report on all aspects of finance from managing cash flow to choosing the best accounting software.