The digital world is drowning in data and businesses can either just let it pile up or harness it for their benefit. And while the second option sounds like the obvious choice, many companies don’t take full advantage of data-driven decision-making.
In the past, managers had to use their observational and analytical skills to understand the market. Furthermore, having this ability was often seen as a sign of professional genius and those few who had this talent were in high demand.
Nowadays, while this skill is still important, we have smart tools which use hard facts and data to predict the market and consequently help us make the right decisions.
Smart tools allow us to observe processes at scale and obtain analytical results in minutes. They show us patterns and provide insight that most people are not even aware of.
However, the question remains, are we really using this information to its fullest potential? And how does this information help us?
What Is Data-Driven Decision Making?
Data-driven decision-making is the process of analyzing existing information and obtaining new data to back and inspire the actions of companies. It allows business owners and department leaders to minimize the risk when making choices and thus improve performance and productivity.
To make data-driven decisions, companies should:
- Track financial, sales, and marketing KPIs.
- Monitor the performance of different products.
- Analyze data from marketing and business management tools.
- Incorporate site-wide tagging to track conversions.
- Observe and analyze customer behavior and purchasing habits.
- Observe and analyze customer behavior and usage habits.
- Build dashboards to track and visualize data conveniently.
- Follow fluctuations in the numbers.
- Cross-reference internal data with external factors.
However, as advanced as modern technology is, humans are still needed to understand and interpret the data.
Artificial intelligence (AI) can be of great help in the processing and analysis of data – an algorithm takes minutes to do what would normally take a person weeks or months. However, without the human understanding of the world and the bigger picture, results may be biassed and unreliable.
That’s why it should be managed by people who are trained and have a deeper understanding of how to read and interpret the results.
Encouraging analytical data-driven thinking at all levels of your operation will improve the performance of your team, ultimately resulting in a more successful business and better profits.
Why Data-Driven Decision Making Is Important
In the digital world, everything can be tracked and monitored. The tools we use on a daily basis accumulate massive amounts of data and business intel that can provide valuable insight into the marketplace and the competition, the behavior of customers, our business performance, and so on.
Relying on data instead of on hunches, assumptions, and instincts can drastically improve any business revenue and accelerate growth.
Some of the immediate benefits of data-driven decision-making are:
- Reduced costs. In business, any decision you make often involves financial risk. Basing your moves on solid data minimizes the chances of making the wrong choices and wasting money and resources.
- Increased profits. When you give your customers what they actually need and your services match their expectations, you can count on more sales and higher profits.
Improved product. Data from usability testing and voice of the customer research can give you valuable insight on how to make your product better.
- Happier clients. When your actions are based on data, you don’t have to guess how to make your customers happy.
- Reduced churn rates. Analyzing customer behavior and cross-referencing patterns with other factors may show you why clients leave, and how to better retain them.
- Easier decisions. Having the data before you in black and white eliminates any uncertainty when making important choices.
- Minimized bias. Everyone has their own points of view and opinions that influence the way they act in certain situations. A data-driven work culture sets those personal biases aside and allows team members to focus on the facts instead.
- Improved pricing. Basing your prices on research and data allows you to improve your pricing and grow your business without extra effort.
- Better problem-solving. Whatever issues your business is facing, analyzing the relevant data will give you a clue to their origin and how to fix them.
Those are only a few of the benefits associated with data-driven decision-making, and they may vary depending on the industry, the type of company, the current decision-management process, and so on.
All in all, basing your decisions on rock-solid facts leads to developing your company and improving your services.
Tools to Help You With Data-Driven Decision Making: Examples
As mentioned, the key to a successful data-lead approach is to use the right tools and rely on trained professionals to read the results.
With that being said, let’s focus on a few of the best practical examples of how you can implement data-driven decisions in your business to stimulate growth.
Business Intelligence Tools
Business intelligence (BI) tools allow you to utilize all the data your business and marketing platforms accumulate, by integrating it into one solution.
Depending on the level of expertise of your team, you can opt for a pro solution that requires extensive data management knowledge or self-service software that any member of your team can be trained to use.
Cross-referencing information from different tools and channels can be complicated and time-consuming when done manually. But with BI, you have everything you need in one dashboard. This will make the decision-making process far less complicated and can reduce the time it takes to complete tasks, and improve productivity.
With a CRM solution, you have all your customer data under one roof. Each client has a detailed profile, containing their personal information and demographics, purchasing log, interactions with your company, and so on.
Depending on the solution, you can have integrated lead scoring that tracks the client’s actions and notifies you when a lead is ready to be approached. This way you can accelerate the customer’s journey through the funnel and increase conversions.
Also, cloud-based CRM software provides your team with instant access to customer data. This can dramatically improve customer service, sales, and marketing. Having all the information about a client easily available, processed, and analyzed, will make decisions quicker and more precise.
A CRM can improve lead generation, customer acquisition, and customer retention, and help you grow your business with happy and loyal clients.
Market research is your most powerful and reliable source of data.
The applications of research in data-driven decisions are practically endless, and there are various methods you can explore. However, some of the most viable studies that can help you grow your business are:
- Voice of the customer. When developing a new product, you should first understand what your customer’s needs are, how they are currently satisfying them, and how your products can help. This will allow you to build a solution that has better chances of being accepted and achieving commercial success.
- User experience research. The best way to improve your current products, understand how to market them better, and boost their sales, is to observe and analyze how customers use them. This will show you, amongst other things, where people encounter issues, what they enjoy about the products, what features they use, and which ones they ignore. Without this data, you risk basing all your actions on assumptions, and clients are bound to surprise you even when you think you know them.
- Competitor research. Knowing what your competitors are up to can give you valuable information on how to develop your own strategies. Regardless of your current goals, you should always be aware of other companies, why customers love or dislike them, how their products differ from yours, and so on. This will enable you to identify ways to outperform them and improve your market share.
- Pricing research. Pricing research allows you to optimize how you charge your customers based on real-life data. For example, maybe you can increase your profits by attracting more clients and making more sales. Or you can do the same by selling fewer products but at a higher price to customers with better solvency. The needs of the market dictate the price. However, if you base your pricing strategy on a hunch rather than the customer’s perceived product value, you risk missing an opportunity to grow your business with minimal effort.
Digital marketing attribution modeling is the process of tracking conversions amongst communication channels and distributing the credit depending on the role they’ve played in the sale. This data gives you a better understanding of how much each streamline contributes to your business success.
By analyzing your customer’s journey, you can track which platforms actually bring in profits, which spread brand awareness but have no direct effect on sales, and which ones have no relevance at all.
With this, you can optimize your marketing ROI, distribute resources more diligently and in accordance with campaign goals, and improve your marketing strategy.
Website analytics can provide priceless information about your customer’s behavior.
This data shows you what content performs well and keeps customers engaged and what pages have high bounce rates. The tools also help you understand what steps the customer takes before making a purchase, and at what point of their journey they leave without coming back.
By analyzing this information, you will be able to identify any issues on your pages. Furthermore, if you cross-reference the data with other factors, it can help you improve the user experience on your website.
Data may not magically solve all of your problems, but if handled properly it can improve your business’s success rates immensely. Furthermore, it can take the stress out of the decision-making process and provide a solid ground to stand on when making the hard choices.
Also, by taking advantage of your marketing tools, and conducting customer research, you can understand your audience and the marketplace better. This can provide inspiration for new ideas you would have never thought of otherwise.
All in all, data-driven decisions can help you grow your business and improve your work process and culture.
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Bookmarked it! Great article with a ton of useful content! I agree, data is very important for businesses, it can show more insights in customer behavior than ever before. Data is more important than some might think. Often we think what our customers want, but data might show differently. I guess it can be a little overwhelming for small business owners to collect and analyze data themselves. But I think in the future it will be more and more accessible to everybody.