What is predictive analytics? Why should a small business worry about it?

Predictive analytics refers to a collection of processes and mathematical tools which can be applied to solve some common business problems.

Can we forecast the sales of our product based on seasons or geographic regions? Can we determine which prospects are most likely to become customers? Can we identify which customers are likely to jump to a competitor? Can we predict if a transaction is likely to be fraudulent? Can we predict which machinery/equipment is likely to fail – and if so how much time do we have left? Can we segment our customers quickly and automatically so that we can develop appropriate marketing campaigns for each segment? If someone buys an item X from our (web) store, which other items (Y or Z or …) are they most likely to purchase? These are some common issues tackled and there are many more.

predictive analytics facts small business

How is analytics used in businesses today?

In a variety of ways. Probably the most common application is demand forecasting. This is because every business has historical sales data of some sort and for small businesses, growing the top line is a matter of survival. Another critical application is customer retention: retaining existing customers is many times cheaper than acquiring new ones. A third area (important for new businesses) is identifying which prospect groups are most likely to adopt their products or services so that the precious marketing dollars can be spent on the most promising ones.

If a business owner wants to dip their toes into predictive analytics, how can they get started?

The best way is to start by understanding which business problems are the most critical. Then explore if you have the right data (and sufficient data) to address these problem using predictive analytics. You do not need to run out and invest in tools – and there are hundreds of different ones ranging in price from a few thousand dollars to hundreds of thousands. Software is not the first investment you need to make.  Plus there are many robust open-source (meaning free to use) software tools which a small business can rely on. Start with one of these. 

Do not jump to hire a data scientist (even if you can afford one). Build a proof of concept on your most important business problem using open source tools by working with consultants who are focused on helping SMBs.

Predictive analytics is a means to an end – you don’t have to do it because everyone seems to be doing it. Invest in it for the right reasons. If you have a well-defined business objective that involves predicting some future outcomes which are critical to business, you have the right reasons.

Originally posted on Wed, May 20, 2015 @ 08:53 AM

Photo by Agence Olloweb on Unsplash

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