Accounting systems are treasure troves of customer insights

Due to the rising importance of analytics and data science to boost customer intelligence and grow customer value, much derided accounting data are turning out to be some of the most valuable assets owned by small businesses. Large enterprises and SaaS companies led the way and built a sizable advantage. Now SMBs are catching up by combining cloud accounting systems with new tools that don’t require teams of data scientists. 

How businesses are valued changed

Back in the 1890s the adoption of modern accounting practices led to business success being measured by financial ratios and statements. That remained the focus until around the 1970s when shareholder return became the more important indicator of success. Now customer value is the #1 metric and businesses that focus on customer loyalty are growing revenues 250% faster than their peers.

How small to midsize businesses can generate customer value insights 

The process of generating customer insights starts with customer data, which are crunched and transformed by data engineers and scientists. Then the results are shared across the company through internal reports and dashboards in the most suitable format for each department. 

SMBs don’t usually have  ready-to-go customer data in data warehouses or data lakes large enterprises do, but they do have accounting systems. Whether using QuickBooks, Xero or NetSuite, the accounting system is the ground truth for customer sales data. And since these systems store invoices and pay taxes, they’re also one of the most valuable data sources at SMBs’ fingertips. 

That makes accounting data a well-structured but untapped treasure trove of customer insights. Start with the simple, underappreciated sales invoice. Each invoice contains a wealth of information that can be aggregated across hundreds of customers and thousands of invoices to answer lots of questions! 

  • Date of the sale
  • Customer name and contact information
  • Line items for every product or service purchased, with quantities and prices and discounts
  • Payment terms

Customer lifetime value (LTV) is a good place to start and easy to compute by summing the invoices for each customer. That single number helps you rank customers and make other decisions, such as how much to spend on acquiring customers. For example, if the average customer has an LTV of $40,000, you might be comfortable spending $10,000 to acquire new ones. 

We know that not all customers are created equally. The average LTV might be $40k, but there will be small, one-time buyers and others who go on to spend much, much more. And how customers are growing or stalling matters. Smart software can analyze those invoices to separate your more promising customers from the mistakes. Grouping or segmenting your customers based on not just LTV but how often and how recently they buy helps identify upsell opportunities and anticipate churn.

That’s just the beginning. The same customer sales data in your accounting software can identify changes in a customer health score such as customer concentration risk, net revenue retention, and payment risk. Even more value comes from how these metrics trend over time and how they’re used to trigger new actions.

Final thoughts

Finding the treasure hiding in your accounting data is easier than you think. Most SMBs have moved to cloud-based accounting software (eg, QuickBooks, Xero, Sage Intacct, NetSuite), especially after the switch to remote work in 2020. Now solutions such as Tally Street can reliably, safely and inexpensively generate new customer insights from the detailed sales data.

This presents accountants with a golden opportunity. As accounting data plays a larger role in a company’s success the role of accountants also changes. We see this happening in the emergence of the revenue operations (revops) function, which breaks down the silos between traditional accounting, sales and marketing operations to keep everyone better aligned. We also see accounting and bookkeeping firms providing more client advisory services and the AICPA offering a CAS Certificate. These changes are only going to accelerate, don’t miss your opportunity!