Analytics brings insights, but what precisely can it do for a company’s top line?
Revenue maximization projects with analytics garner particularly high ROI’s for an organization because they can drastically change the way businesses (whether restaurants, manufacturer or retailers) manages its pricing. Outlined here are two proven ways to generate new revenue using analytics
Pricing analytics are relatively simple to implement, and the measurement of ROI is straightforward. How do you know which products could benefit from rising prices and which products could benefit from a discount? This has to do with the elasticity of your product (the % change in quantity sold as a ratio to a % change in price). Typical products or services, when sold in a high enough quantity will experience a decrease in quantity sold when the price increases. However, how much will quantity sold decrease by?
Consider the scenario of a steak dinner costing $35 and selling 100 per month. If you increase the price by $10, do you think it will decrease the sales by much? Let’s find out! Let’s say instead of 100, you are now selling 85 steaks per month. That might seem bad, but if you do the math, the old revenue is = price x quantity = $35 x 100 = $3,500. New revenue is 45 x 85 =$3,825. Which is a 9% increase in revenue and profit. Plus, now you have less staff needed and have less congestion, which will lead to better service on a busy night.
However, before you go and change all your pricing, please remember that this must be done in a controlled manner, and a lot of analysis and testing goes into deciding which product(s) would benefit by a price change and by how much. It’s an interdisciplinary application of economics, behaviour psychology, business and analytics all at play. Plus, pricing doesn’t just have to do with your top-line price; it has to do with bundling, discounting, cost basis, seasonality and timing. What if you price your steak higher on Fridays vs Tuesdays? How about Valentine's day? All considerations matter!
Customer Analysis and Segmentation
Having a deeper understanding of your customers will help you understand their interaction with you and help you better serve them! Understanding customers through the lens of their transactions enables you to focus on the highest value customers, as well as where to tweak your conversion funnel to achieve better revenue.
Which customers are your frequent customers? Which customers buy the most from you? What do they like and not like? This information is incredibly useful when you are designing new advertising campaigns, new services/products, creating loyalty programs, and cross-selling between your products.
We always encourage combining qualitative information with the quantitative. Getting your customers in the door for focus groups or having them fill out open-ended surveys are simple opportunities to provide very-useful and often overlooked intelligence.
Contact AAARL for a free consultation and explore
the ways our team can increase revenue for
your specific business through the use of analytics!