Demographic Analysis is the statistical measure of the general population, especially in terms of gender, age, race, and income. Alternatively, if you sell to companies, it also refers to knowing the average employee size and industry codes of your customers.
There are many degrees of demographic analysis. In the simplest case, you might want to know the total population in the local area. In a more advanced case, you may need to have a mathematical formula for predicting the expected number of customers in an area based upon the number of men ages 25-40 with household income greater than $50,000.
Let’s start with the simplest case …
Analytics In Focus is entrepreneurial, just like you. We have access to plenty of demographic databases that we can license to you for $10,000+, but we rarely (actually never) use them. The United States Census Bureau collects an enormous amount of data, and it is free. Unfortunately, it’s painful to get the data from them, but we know how to do it, and we can take that pain away from you.
A common misconception is that the census only takes place every ten years. While it is true that a full enumeration (counting) is done only once per ten years, the census bureau collects samples every single month and publishes it annually. As a result, most of the data that we use is newer than the 2010 census.
If you are a franchisee or a franchisor whose budget is tight, you might want to think about building a customer profile using your best judgment. Think about who your typical customers are. If you sell to consumers, then think about the number of men vs. women, typical ages, rich vs. poor, etc. If you sell to companies, think about the industries and company sizes you sell to. Then, take a look a look at our Service Area Solutions (if you go to your customer’s location or if you don’t meet your customers face-to-face) or our Location Based Solutions (if your customers come to you).
If you are a franchisor that already has a few locations, you might be interested in a more thorough demographic analysis of your customers. In a customer analysis, we’ll help you to measure the statistical relationship between your customers and the general population, especially in terms of gender, age, race, and income. Or, if you sell to companies, we’ll analyze the statistical relationship between your customers versus the prevalence of the number of companies at different sizes across each industry category.
The goal of a customer analysis is to predict the opportunity in terms of number of customers in any given location. This helps you to know what parts of a territory are underperforming (and might need additional advertising) or where you might want to add another franchise location.
Expected number of customers for franchise = # of family households / 5,000 - # of Hispanic households / 15,000.
In the example above, the likelihood of being a customer was one in every 5,000 families (less one per every 15,000 Hispanic households). Please note that the numbers and exact formula here has been modified from the actual analysis, but the result is consistent with the observed customer profile of the franchise.
Expected number of customers for a franchise selling to businesses = 20% x Highly Correlated Industries + 12% x Medium Correlated Industries + 4% x Low Correlated Industries if and only if the Company had > 100 employees at the site. A separate list categorized all industry codes (NAICS codes or SIC codes) by High, Medium, Low, or Very Low (those that didn’t generate any customers).
In this example, (again with numbers changed and exact formula specifics changed), the customer was able to explain over 90% of their sales using the formula above.
Imagine if you could estimate the sales of a franchise location that doesn't even exist yet by +/- 10% just by knowing where it will be located. That’s the power of a customer analysis. Each analysis is custom to you as it requires us to analyze your customer database. Because of the time and effort required (usually a few weeks at a cost of a few thousand dollars), we’ll need some additional information before we can give you a firm quote.
Give us a call today at (908) 899-1890 and we’ll be happy to get you started.