How much influence do demographics have on your business? Demographic data analysis can provide essential information for businesses, especially in site selection. Founding a new business is a complex process that often originates from a sudden idea. Many people passing by an empty storefront might consider the property an ideal starting place for their beloved coffee shop, while others might think of realizing their boutique someday. However, it is an essential task to find the exact spot for a business. That is especially true for business ideas that require a physical location to conduct business. These locations may have tempting storefronts, enough parking space, and are near a busy street. However, what most new entrepreneurs may not consider is a thorough understanding of the people surrounding and walking past their storefront. How can businesses select a good spot? How can they compare multiple vacant spaces while understanding these surroundings well?
This article will dive into the foundational yet essential concept of demographic data analysis. Demographic data analysis provides valuable information that can help determine a proper starting point for future and thriving business opportunities.
Understanding Demographic Data
Important decisions should always be based on reliable and valid information. So, what is demographic data? Where does it come from, and who collects that information?
Demographic data is crucial in business planning. It refers to statistical information about a given population, providing a general overview of its composition. The government, for example, uses this information to obtain various information about the people. Given that information, municipalities can plan and determine the time and place for housing projects, plan for new infrastructure, and so on. The primary source of demographic data originated from:
- Census: A census is a mandatory event every decade. It is a comprehensive count and measurement of national governments. The U.S. Census Bureau provides a thorough and long-term overview of the American people.
- Surveys: Surveys are an additional method of collecting data. They are typically conducted at a much higher frequency and with specific questions in mind. In contrast to the census, surveys are conducted by various organizations.
Demographic data is a helpful collection of various characteristics (called components). As such, successful businesses started utilizing it to refine their businesses. As a result, marketing agencies and research firms are collecting additional information through direct and indirect methods:
- Direct: Targeted, product, or industry-specific research with surveys, questionnaires, and studies conducted by specialized agencies and analysts.
- Indirect: Collection of user and profile information for statistical purposes. Part of the product or business activity (e.g., application, user account).
The data is essential for multiple groups in our economy. To that extent, business owners and young entrepreneurs must acquire valuable insights from this comprehensive data through various channels. This sourcing can be expensive and time-consuming; however, there are affordable tools for conducting this demographic data analysis.
Importance of Demographic Data for Businesses
Given that background, why do successful businesses rely on that information? And why is it essential for physical companies to know their neighborhood? Demographic data analysis is critical for companies due to multiple reasons:
- Customer: Demographic data provides insights into identifying customers and business potential.
- Product: A comprehensive data analysis can indicate whether a business or product can succeed in a given region or neighborhood and reveal the need for product refinement.
- Demand: A thorough understanding of the development of the specific market/area can support long-term success.
- Opportunity: An excellent demographic data analysis can reveal blind spots in given regions and thus enable new business opportunities.
About new local businesses, there are even more insights that a comprehensive demographic data analysis can provide:
- Location: Optimal location for offices and stores.
- Marketing: Product design, characteristics, and services to a specific demographic group.
- Pricing: Prices factor in household income and spending habits.
- Hiring: Qualified staff that reflects and understands the primary customer base.
Businesses use all available information to minimize the risks of new ventures and ensure long-term success in their markets. Understanding the various circumstances and market conditions is essential. That is where data, and in this context, demographic data, comes into play.
How to Conduct a Demographic Analysis for Business
Understanding its importance is an essential step to a successful business. However, most insights are required before even starting the business. How do I access these insights? What are the methods of demographic data analysis? How to conduct demographic data analysis? What are the challenges?
Scope
Every demographic data analysis starts with a clear scope. Good analysis additionally has a narrow scope:
What is the location of interest? Is the analysis needed on a county, regional, or neighborhood level? This decision determines the baseline and the required data detail. Obtaining insights into a specific neighborhood (region, district, block) requires more effort and unique methods and techniques.
What are the most important characteristics? It is counterintuitive to strip down the data and only pursue the relevant attributes for the analysis. However, most analyses quickly grow in complexity, so having a clear focus on the relevant factors assists in getting the insights. Typically, these factors are age, household income, and spending habits, but they can also weigh in more components, such as marital status and housing situation.
| Finding the right spot to start a business can be time-consuming. At Mapchise, we have got you covered! Our Platform provides an intuitive platform that can assist you in site selection. You can freely browse different neighborhoods and locations simultaneously and compare them with essential data and statistics, including demographic data. |
Collect
There are various data sources for demographic data. It is essential to acquire data from trusted and reliable sources. Among the most important is the U.S. Census Bureau, which is among other governmental institutions that provide free access to data. External, specialized market research agencies and analysts can acquire additional information. These two groups offer reports for specific markets and industries with an important caveat: These services are costly and limited to a particular scope. Businesses are often tied to a budget, especially when just starting.
However, the data often needs to be transformed to meet the scope of the particular demographic data analysis. In addition, the data then requires some form of visualization to provide an overview and reveal hidden insights. Instead of synthesizing various providers and sources, tailored platforms with verified data sources are an affordable and convenient investment for business success.
Analyze
Demographic data offers valuable insights for businesses with a clear scope. Businesses can reveal distinct patterns and trends in the data. Insights can come in different ways:
- Are there anomalies in the data?
- Is there enough potential demand?
- What is the future outlook for that location?
Act
Based on the findings, businesses can refine strategies, models, and products. An initial analysis also provides a rough answer to the company’s feasibility. Entrepreneurs can, therefore, determine whether the particular location is a good starting point for a successful business.
Challenges for Businesses
The process of demographic data analysis is relatively linear. However, businesses interested in the demographics face distinct challenges.
- Data Accuracy: The data is gathered in various frequencies. While the official census is every ten years, other sources might conduct detailed studies more frequently. Getting the most recent data from multiple sources is complex.
- Data Interpretation: Once collected, the data requires distinct transformations and often statistical models to extract the relevant characteristics. Since the underlying question for demographic data analysis is highly subjective, there is a good chance that the data requires reshaping.
- Data Acquisition: Data will come from multiple sources. However, there is a guarantee that businesses must deal with various data formats and additional expenses to get access to third-party data.
Overcoming these obstacles requires significant expertise in data processing and data visualization. Fortunately, some tools support businesses in their specific analysis.
Use of Demographic Data for Businesses
How can demographics influence business decisions? This section will introduce demographic data analysis concerning location intelligence, which utilizes location-specific data and demographics to support business decision-making. Here are two examples with some general suggestions on what characteristics entrepreneurs look for.
Example #1: Restaurants
A business owner can utilize location intelligence to find a suitable location for their new restaurant, either the first or an additional location. A neighborhood analysis can determine whether enough prospective households are interested in the restaurant concept. Important demographic components include household income, marital status, housing situation, and accessibility.
- A fine-dining restaurant looks for a location with many couples with a good income. Another indicator can be single-family homes and more quiet streets.
- Take-out and franchise restaurants typically rely on good visibility and easy and convenient access (traffic) from a vast customer base. Their targets are singles, low—to medium-income people, and multi-family homes.
Example #2: Retail
Retail heavily depends on good accessibility. Entrepreneurs need to make this a top priority for their location. This dependency is especially true when dealing with groceries and necessities since many customers consider them a chore. Demographic components include population, household income, age, and accessibility.
- A bookstore might look for a location near an educational facility. It can also use demographics to tailor the inventory to age and specific ethnic backgrounds (foreign speakers, etc.)
- A fashion boutique might look for a location with (young) professionals and enough disposable income. Typically, these customers live in multi-family homes and move to areas with diverse cultural offerings. (bars, unique stores) The boutique itself may benefit from a good foot traffic situation.
These examples are only illustrative. Various, highly subjective components of the individual business intent build the foundation for a comprehensive analysis. However, these examples show that demographic data is essential in business location-based decision-making.
Demographic Insights are Key
Demographic data analysis is an essential part of a data-driven business. This article outlined how companies can utilize targeted demographic data analysis. While these insights are critical for refining business strategies and product portfolios, they are essential when starting and expanding a business. Having a clear scope assists in conducting a targeted analysis.
Businesses face multiple challenges when acquiring insights. Data accuracy, acquisition, and interpretation are significant challenges that require a sophisticated approach to leveraging demographic data. Examining various locations for a given demographic data analysis leads to a time-consuming investigation that conclusively needs an automated tool that delivers accessible and reliable information. Given the right tool, entrepreneurs can efficiently examine locations using demographic data as a foundation for a reliable and successful business.
Ready for a Test Drive?
There is no need for this complex and time-consuming data collection and analysis. At Mapchise, we offer an easy-to-use, insightful application that comprises recent demographic data from various sources. Demographics are only a part of our extensive location intelligence application. Get the insights and start your business journey today!
