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What data can, and should, small businesses collect about their customers?

by Staff GBAF Publications Ltd
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By Kendra Vant, Executive GM of Data at small biz accounting software platform Xero

Data collection is in large part a topic discussed in the context of enterprises – but customer acqusition and data gathering is central to decisions of businesses both large and small. It can provide key intel to owners about what products and services to lean into, which ones to downplay as well as key increases or decreases in activity.

So what data can, and should, small businesses collect about their customers?

Small business accounting platform Xero launched a Responsible Data Use Advisory Council to discuss topics like this and provide education and resources to small businesses across the globe. The members – outlined below – recently met to discuss the this important topic :

  • Anna Johnston, Principal at Salinger Privacy
  • Felicity Pereyra, Founder of Elevate Strategies
  • Laura Jackson, Founder of Popcorn Shed
  • Maribel Lopez, Analyst at Lopez Research
  • Wyndi and Eli Tagi, Advisors at WE Mana
  • Aaron Wittman, Developer at XBert
  • Kendra Vant, Executive GM of Data at Xero

 Collection minimization is about understanding what data you need from your customers to provide your product or service, being clear with them on the purpose of collection, and not collecting more data than required. It is a key concept underpinning responsible data use.

For instance, an important  topic is the (over) collection of gender data. While knowing the gender identity of customers can be useful for marketing and product development, it is rarely necessary to collect this data when providing a product or service. Requiring someone to share their gender identity without a proper reason can be annoying, or even deeply alienating for non-binary people. In some cases, it can also be unlawful! 

Even if customers don’t express frustration or complain about excessive collection of their data, we know that they push back in other ways. The group talked about the fact that in online retail, a significant proportion of customers will give false information to questions that are irrelevant to their purchase. This leaves the business holding junk data that may lead to bad decisions.

Council members turned to how businesses can tread the middle ground of collecting the data they need, but not overstepping. For example, licensed venues can choose to accept digital IDs that verify a person is of legal drinking age without disclosing their address and date of birth – rather than taking scans or copies of patrons’ driving licenses, which creates an unnecessary privacy and security risk. Small business owners should consider how this applies to their own business – in other words, how to collect the data you require in order to do business, while ensuring you’re not collecting anything unnecessary.

In fact, one of the reasons single-sign-on services like Google, Meta and Amazon are becoming popular is so people can log in or complete a transaction without handing over their information. However, when integrating with one of these services, it is important to be mindful of what data they are collecting about your customers and how they intend to use it.

The case for voluntary data collection

Several members noted that, as small business owners, they have a commercial incentive to gather as much valuable data as possible, but as customers, they’re not always comfortable with sharing personal information. In general, we agreed that applying the customer perspective is important. As a customer, is this data necessary for the product or service? Would I feel comfortable sharing this information with this business? How will the business use the data? Would a customer trust us to keep their data safe?

One solution is to make data collection voluntary, rather than mandatory – let customers choose which non-essential data they choose to disclose. This would encourage businesses to be more deliberate in how they use data, and to explain their data use cases more clearly to their customers. For instance, is the business collecting data simply for marketing purposes, or is there a clear benefit to the customer?

Looking ahead

The conversation certainly raised some interesting discussion points, particularly around what small businesses could do to improve their data collection practices. I’d encourage any small business owner to pop on their consumer “hat” when thinking about what data they need to collect – what would you be comfortable with, as a customer – and apply those principles to your own business.