I was watching some business programming and two of the panelists were going back on forth on the impact of big data on brick and mortar retail. After a few minutes of discussion, the host stopped the two and asked, “What is your definition of big data?”. If you read popular business literature such as Forbes or Business Week, it is difficult to go one issue without seeing the phrase “Big Data”. The Wikipedia definition of “Big Data” is “an all-encompassing term for any collection of data sets so large and complex that it becomes difficult to process using on-hand data management tools or traditional data processing applications.”
I have a somewhat similar definition. To me, Big Data is the practice of companies procuring data from their customers and using the data in order to better serve their customers and increase profits. In talking with most small business owners, I often hear that they would love to learn more about their customers, but they don’t know where to start. They don’t believe they can do what bigger companies are doing because they don’t have the magic those larger companies use to extract the data.
I am here to tell you that as a small business owner, you probably have a lot more customer data than you even know. If you don’t, a few small processes and changes to your business practices will allow you to collect some of the data you need to start further analyzing your customers.
Once you have the data, great, now what? The story I am about to tell you is personal because it is about one of my businesses. Over a two year period, we changed our processes and systems so we could start collecting data that would affect our marketing, customer services, and other areas of our business.
When I was 23 and in my first year in public accounting, I knew that I wanted to own a business. After 12 years of spending nights and weekends scowling the internet, meeting with business brokers, and emailing people to see if they were interested in selling their business, I landed on Monkey Bizness. Monkey Bizness is an indoor playground for kids under the age of 8. I personally own two stores and am also the franchisor of the concept, with three franchisees in Colorado and Kansas.
Early on in my ownership, I realized that we needed to increase visit frequency from our existing customers. A saying that you may have heard, that it is 10 times more expensive to obtain a new customer than to keep an existing customer, has a lot of truth to it. As such, I set out to put in a loyalty system in our stores. I looked at many off the shelf systems and consulted with my franchisees about the various bells and whistles we were looking for. Then one day I got a call from one of my franchisees who had a software development company on the side. His pitch was “let me build a software system for you.” After a few meetings, that is what we decided to do. While this was initially a more costly option, the system would end up paying for itself in less than 2 years.
The great thing about building a system is that you can customize it to meet your business needs. Any parent that has been to an indoor playground or trampoline center knows that the waiver process when you check in can be a stressful one. We designed a system to take the stress out. We also designed a system to capture certain customer information. While we didn’t want to be too invasive, we did want to capture a few bits of data that would help us with our business. Specifically, we wanted to capture the birth dates of the kids and the zip codes of our customers. The system would begin to track the frequency and timing of visits, which was more than we currently had. I don’t want to sell the software short as just a data collection system, because we now run a significant portion of our business using this system, including a huge piece of our marketing (while the purpose of this paper is not marketing, this is one area where accounting/finance and marketing merge together).
After a few months of running this new system in our stores, we were ready to start making some initial conclusions. I say “initial” because data will change over time and you must recognize and adjust to the changes. We started to learn that the average customer visited our stores 2.5 times per year. We now knew which zip codes around our stores our marketing efforts were paying off and which we would need to develop a new strategy to reach. We figured out that 72% of the children that visited were between 3-5 years old. Our Fridays were generally twice as busy as our Mondays. On average, 69% of our customers were coming from less than 10 miles away.
We also found out some facts that were just interesting, not necessarily useful. For instance, in just 4 months, we had visits to our stores from all 50 states. While this didn’t help us from our marketing perspective, it did help us from a franchising perspective. People that visited us outside of Colorado now found themselves on our franchise email list. We ended up getting a good amount of leads for our franchise using this methodology.
This data impacted how we operated. For instance, we now had a goal of increasing the average customer visits per year from 2.5 to 4. We built marketing systems around this and incentivized our customers differently. We also began to adjust our marketing to parents with kids in a smaller demographic. On Facebook and Google, our marketing efforts were adjusted to certain zip codes. We were now able to do some things in our business more purposefully because we had this information.
While this is a fascinating story, you might be saying to yourself, “I don’t have the money or time to build a software system for my business”. I understand. As a business owner and past experiences as the head of finance in a software company, I know the process of designing custom software can be a long, expensive one. However, this doesn’t mean that you don’t have business data. Is there information about your customers that you are collecting that you should be using?
At Monkey Bizness, a significant portion of our revenue is derived from birthday parties. We have an off the shelf software system that we use where customers can either book a party online or over the phone. The system collects a great amount of information such as billing address, age of the birthday child, date of the booking and party, and much more. This system is readily available to any business that signs up and pays the monthly fee.
One of our store locations hosts over 1,400 parties a year. Once we had about 700 parties, we started mining the information to see what we could learn. So, what did we learn about our parties?
- 68% of our parties booked were one of our low-cost pricing packages
- The average time someone booked a party was 32 days prior to the date booked/li>
- The average age of the birthday child was 5 years old/li>
- Over 70% of our parties were held for 3, 4, and 5-year-old children/li>
- 75% of our parties were booked online/li>
- Unlike our open play and weekday visits, 2/3 of people traveled from over 10 miles away/li>
- 44% of people who had parties with us, had never been to the store before/li>
We learned a lot more information. For instance, the area of town most of our customers were from and how they learned about us. The amazing thing is, we learned most of this information by just using the system our business already had in place.
Armed with this information, we started making business decisions. Marketing to our current customers for parties started going out 45 days in advance of their child’s birthday (versus 30 days prior to this data). We began to look at our offerings to see how we could expand to get more 6 and 7-year-old parties. While we somewhat contracted our marketing for open play, we expanded it for birthday parties because we now were armed with information that people were willing to travel from further away. We also knew we needed to improve our marketing to our current customers. How was it that 44% of people had never been to Monkey Bizness before but were booking parties? Did that represent an opportunity to better market to our current customers? We also enhanced our online experience since most of our parties were being booked online.
The last system we started using was our merchant processing and POS (“point of sale”) system. Early on in my ownership of Monkey Bizness, I had keyed in on finding the right processor. For us, this decision was purely financial. We started looking at Square for our processing. While most processors will say their merchant processing percentage is less (and that is true), their overall cost is generally more significant depending on your average ticket size. The other great quality about Square was some of their data tracking. A lot of what we were looking to learn about our customers was being tracked within Square (on top of this, we saved over $250 per month using their POS system).
These last two are great examples of using the systems you already have in place to learn more about your customers. You don’t always need a fancy software system. If you have a Facebook page, you can learn a lot about your customers. What you do need is the knowledge of where to look and what to look for.
Small Takeaways from Big Data
Big Data is relative to everyone. John Deere has fewer customers than McDonald’s, but that doesn’t mean they can’t learn a lot about their customers. At Monkey Bizness, we started making some assumptions after a sample of just 700. What is more important is figuring out where to look and what you can gain from it.
Sometimes it is smart to alter your business systems to collect more data. Customers won’t notice most of the systems and processes you alter and yet will give you a lot of information to make business decisions. Working with a variety of businesses over my career, I am always amazed at how decisions can be made with little to no information about customers. It doesn’t need to be this way. Chances are you have a lot of information about your customer base at your fingertips and if you don’t, you can make small changes to obtain that information.
Talk with your financial advisor or accountant. With just a few questions, they should be able to tell you if you have the systems in place that are collecting the data you need. They should have ideas on how data can help your business and how you can use it in operations. If you don’t have the faintest idea where to start, this conversation should help you develop the ideas you need to get the ball rolling. As a data-nerd myself, these ideas excite me. As a business owner, you should be excited at the prospect of having some real data to help you grow your business!