The Power of Statistics in Business

Most of us hate numbers, unless they pertain to the money in our pockets or increase in our stocks’ price. But crunching numbers is a reality in all businesses. Statistics is the data gathered pertaining to a subject—demographics, demand, foot traffic, etc. By knowing these data and effectively interpreting them, you can make a decision that could lead to your desired result. Statistics play a big role in your business, even as early as the planning stage.

Risk is an inevitable part of any endeavor and can only be alleviated by acquiring relevant information, which, when taken advantage of, would help you create less risky decisions. Theoretically, “perfect information” in business is when enough data is gathered that allows you to decide while knowing every possible reaction. But to think that you can simply buy perfect information at the nearest convenience store is mere fantasy. However, we can acquire enough information that would at least help us make safe decisions, or pick out the lesser evil among them.

Even before putting up a business, statistics will play a critical role in your feasibility studies and business plan. What place will give you a good number of customers? At what time should you open or close your business if you plan to set it up in the middle of towering condos? These are just for your location study. Obviously, if your target market can be found very near your desired location, you can safely assume that you will get a good number of customers.

How about for your marketing? Print ads can burn big holes in your corporate pockets, so you better make sure to produce an acceptable return from that investment. Online ads are often free, unless you avail of premium ads, which are cheaper than print ads most of the time, but good luck with the competition. Again, how is the return?

Numbers give you good motivation to set up your business—they tell you when foot traffic will do well in your chosen location, and forecast when you are likely to get a hefty return from your investment. Numbers are why you start the business in the first place. But now what?

Does your business actually have a peak season that you often overlook? Which gender buys your products the most? Market trends can dictate whether or not you will survive for the following years. Some of them can even kill your business within a span of months. Take a look at MP3 players for example. The moment cell phones integrated the music-playing feature, mp3 players dropped like flies (digicams, you’re next!). If anything, this scenario tells you to conduct a statistical study on consumer behavior continuously. How profitable is that industry? How many actually avail of that service? How many want this kind of innovation? Figure out the demand. Figure out at what stage your product is in the product life cycle.

Note that an increase in customers does not always reflect the effectiveness of your marketing strategies. You can check this by conducting a survey among your customers on their motivations to buy your product. Did they see your online ad and decided to try it out? Did your black and white ad in the newspaper work? Quantify the return and compare the cost incurred. If it does you little, then maybe you can cut that part to save cost, or place your budget in another strategy.

While it’s true that quality is part of your selling point, how do you actually measure it? Do you have to check all of your items before you send them to your physical stores? If you are planning to do just that, the time and cost may not justify the effort. That is why you apply statistics in quality control. You have to know how to sample your products carefully and efficiently for testing. For example, for you to determine the average life of your light bulb products, you can take out some boxes of bulbs, test them, and compute for the average. This average is as good as saying that all your bulbs will have that average life. In a restaurant, you can compute for customer satisfaction by observation, or if you choose to be more precise, by conducting a survey. How? Certainly not by giving out survey sheets to everyone who enters your establishment, but by giving them to a select few.

*Originally published by the Manila Bulletin. C-6, Sunday, November 2, 2014. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.