- A mass of data from the economy’s wild year-and-a-half should be fueling your business decisions. If not, now’s the time to make it happen.
- To get more data into your decision-making, start by looking outside of your own organization.
- Choose the right KPIs and set up continuous financial analysis for an easier go of predicting demand and monitoring success.
March 2020 demanded we make business decisions without much to back them up. There simply wasn’t data about how a once-in-a-century pandemic would impact global business and when to expect a recovery. Over in a few months? Years? Nobody could predict the extent of lockdowns or anything else related to the pandemic. Hitting the brakes hard was a common first instinct, but for some it was an overreaction that left room for more daring competitors to take market share.
The sharp spike in layoffs followed by an equally sharp recovery in the unemployment rate is a good primary indicator of this overreaction.
But now, entering into what appears to be a V-shaped recovery, we do have data. Much of it is good, but not all of it. We’ve already talked about the worldwide supply chain issues that are likely to persist. Housing stock is below demand, building material prices are spiking, rental cars are impossible to get and summer gas shortages pushed up prices beyond 2019 levels. Unemployment remains high even as companies are plagued by skills shortages.
Bottom line: There is a boom, but it’s a lumpy one, and if you expect workers to come back for less than $10 per hour, that’s probably not going to happen. On the other hand, consumer spending is also booming. Airports have been packed. Many service-sector businesses simply can’t meet demand. If there was ever a time for careful data analysis, this is it.
Expand your data view:
Analysis needs to consider internal and external data sources. If that hasn’t been part of your approach, this is a good time to fix that. It’s also a good time for B2B companies to reach out to customers to gauge their own business outlooks and expected demand for your goods and services. They’ll be eager to hear how confident you are in terms of fulfilling their orders.
Most B2C companies are seeing the result of pent-up demand. However, goods from appliances to furniture are currently in short supply, and so are the parts to make them. So your analysis needs to broaden to include the economic forces at hand. Demand planning is a cross-functional, data-driven process that helps businesses meet their customers’ needs without overshooting on inventory.
Instrument your operations:
Do you have systems in place to report on operations throughout the business, from sales engagements to marketing lead generation to raw materials costs? How about traditional finance metrics ranging from the big three — cash flow, revenue and profits — to more tactical but still highly important measures that provide insights on efficiency and progress?
For instance, customer acquisition costs are rising for many sectors and, in some cases, threaten to substantially reduce margins. But CAC is only one factor in customer lifetime value, and only one of many critical financial metrics to track. Your challenges may be around rising supply or shipping costs, or higher wage demands. In the current red-hot market, choosing the right KPIs is more important than ever.
Make financial analysis continuous:
Whether or not your business had the right data to support scenario planning in 2020, most found a way to make plans for various contingencies. For finance teams, that often meant 55-hour-plus workweeks as they labored to understand cash flows, unit economics and other critical metrics that they’d never studied at the frequency or detail now required.
Teams that had ERP systems in place, or that implemented them in 2020, have an automated way to gather data for ongoing financial analysis. As the volume and velocity of business increases in 2021, manual methods of analyzing data will be a strategic disadvantage.
More Resources From NetSuite
Create a strategic advantage for your business by exploring an enterprise resource planning (ERP) system, which produces the constant financial analysis that leads to data-fueled decisions.
Get a refresher on leading and lagging KPIs — the former is especially important right now — as well as how to create KPIs tailored to your business’s current priority.
Calculate this critical metric to more fully understand how much you can plan to earn from the average customer over the course of their relationship with your business.