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Bobak Saadat

May 20th, 2016

How much data does a startup need?

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Estimated reading time: 5 minutes

Bobak Saadat

May 20th, 2016

How much data does a startup need?

0 comments

Estimated reading time: 5 minutes

Guest blog by Stuart McClure, Founder of Love the Sales:

Anyone interested in tech businesses will have heard the cry of ‘big data’ and how important it is to collect and use it. It’s common knowledge that data is key to understanding your business, its performance and its customers, but having data and using it are two different things.

General tips

Here are a few tips that should be applicable to any situation on what you should think about with the data you collate for your business.

  1. Share data widely – people in your business need to be ‘armed’ with data. The more they know the more effective they can be. The less they know, the more their efforts could be wasted.
  2. Build a culture centered on factual data from day one in your business – it’s amazing how many businesses don’t base decisions on fact.
  3. Never assume – closely related to the above point. Whatever you do in your business, ensure you have data to support its successes or quantify its failures.
  4. Learn fast – this is essential. Use your data to help you learn quickly. Did the new homepage increase conversion? If not, go back to the old design or run a new test. Never make a decision because someone thinks something is better.
  5. Always have a clear, concise hypothesis before you work on any test and its supporting data. Also, failing is good. If your data tells you a test failed, at least you know not to do that anymore.
  6. Start with simple, descriptive results first – it’s easy to dive in and start performing complex analysis on your data, but before you do, look at some of the base trends. These simple results might give you quick, clear, time saving observations to work from.

Practical example

In our business we want to know everything about our customers. To that end, we collect data on every bit of activity they perform on our site: every page they visit, every product they click on, how much they spend etc. That’s the easy bit – so what can we do with that data now that we have it? Let’s take one example of where this data is paramount to success and dissect it a little:

Customer acquisition

Customer acquisition is paramount to every business. We want to use the data we have collected on our customers to understand how much we should spend to acquire new ones.

First, we need to understand the average customer’s Lifetime Value (that’s the total amount of money they spend with us across all their transactions – also known as LTV). We average out the spend of each customer to give us the average LTV, let’s say it is £100.

Now we need to understand how much of that £100 is profit – we take out the costs of making that £100, so let’s say it cost £40 to make it, leaving us with £60 profit. With that information in hand we can now determine how much of that profit we are willing to invest in new customer acquisition.

There are various ways to determine how much to reinvest in new customer acquisition, but for this example let’s say we are happy to reinvest £15 of the profit to acquire a new customer. We can now begin to buy new customers for our business. But wait! We are going to need more data to make sure our advertising is effective. We can’t just start spending on adverts and hope for the best.

Let’s say we decide to buy more customers by using Google Pay Per Click advertising (PPC) – we need to collate and analyse data from these campaigns to ensure they are delivering new customers in line with the £15 cost we have determined. How much does each click cost? How many clicks does it take to convert one of those sales to a customer? What’s the average cost for that to happen?

Final thoughts

Through the above you can see how data very quickly becomes essential to just one aspect of a business’s daily efforts. And as a startup this is even more paramount because every second counts. Money is tight and success is essential.

In our experience, collecting data is not particularly difficult. Nor is it expensive to store. We believe in collating as much data about all areas of relevance in your business from day one because you never know what data you may need in the future.

For example, if you don’t track any customer behavior on your site, you can’t use that data to encourage repeat purchases. You may not have built this function yet, however by thinking ahead and collecting the data now you will have it at your disposal later on, improving the customer experience and increasing conversion.

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Bobak Saadat

Posted In: Generate | LSE Careers

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