Investors use firmographics to categorize firms and increase portfolio returns
There are numerous ways to conduct your investment analysis to make profitable decisions. The only common aspect of all of these analysis methods is the quality of your underlying data. As a result, the demand for accurate, reliable information is rapidly increasing nowadays. One type of such data is firmographics. The following sections explore how investors use firmographic data to increase portfolio returns.
What is firmographics?
Firmographic data refers to a collection of information that usually serves B2B organizations to segment their markets, improve competitive intelligence, and more. This information is similar to demographics, but it is used to categorize firms instead of people.
For instance, a firmographic dataset may include business location and size, industry, funding rounds, and more. Typically, firms use this information to improve sales through targeted marketing campaigns. The main types of firmographic data include:
- Size of the organization, which can be used for investment purposes
- The type of business, such as non-profit, NGOs, charities, for-profit organizations, and more
- The business location, which might indicate regional challenges or opportunities
- Details regarding funding rounds that could indicate business expansion
- Type of industry
How investors utilize firmographic data
Apart from the apparent uses of firmographic data for the B2B industry, this type of information is becoming crucial in the field of investment. Investors need to use a broad range of factors to identify investment opportunities, and data-driven decisions are undoubtedly taking the place of investing based on guesswork. Let’s see how investors utilize firmographic data to identify opportunities and outperform the market.
Rich source of knowledge
Firmographic data eases one of the most important investment stages – research. When selecting potential assets to invest in, investors need to collect general information about companies. Access to a large database that contains company size and industry, for instance, can serve as the basis of your analysis. This would allow for quick filtering of businesses that you might be interested in, such as startups in the technology sector.
Quick insights into companies and industries
If you are unsure what companies or industries you should focus on, firmographic data allow access to a broad range of information. You can easily filter these data by size, category, founding year, and more. This type of information may be used to diversify your portfolio or identify high-growth stocks in a given industry.
The geopolitical landscape is crucial in investment as numerous regional events can determine the profitability of your investment. You may use firmographic data to identify companies in certain geographical areas across endless verticals and industries.
At the same time, you will also be able to analyze all the competitors in the same region. This could help you determine the survival chance of your chosen companies, identify opportunities, or adjust your portfolio if you reveal competitive threats.
Better insight into investment opportunities
Understanding the inner workings of different industries and relationships between companies helps you boost your investment intelligence capabilities. Firmographic data allows investors to analyze and identify correlations or patterns between companies in the same industry or related branches. It also helps you make more accurate predictions and lower your portfolio risks.
Uncover industry trends
Investors who leverage firmographic data are able to uncover industry trends before their peers that use traditional data. You can use this detailed firm-specific information to find new technologies, patterns, and general market directions. This is an important way of supplementing your market research while predicting industry trends and capitalizing on such opportunities.
One of the most important concerns related to the investment field is risk mitigation. Many companies, especially startups or companies activating in volatile markets, come with high risks for investors. Firmographic data can be used to predict market trends, identify business expansion, or examine potential red flags related to your current portfolio.
For instance, fresh and accurate firmographics data provides an in-depth insight into the number of employees of your chosen companies. You can use this to identify potential internal practices that could affect the growth of the company.
In other words, if a firm’s number of employees decreases, there might be concerns related to management or corporate culture. You can use this information to adjust your portfolio before incurring losses.
Additionally, the same indicator may also show business expansion. For instance, if you notice an increase in funding rounds and the number of employees, this could mean that the company is currently growing, so you may want to keep your position.
All in all, firmographics provide a deeper insight into businesses from different verticals and industries. This granular information allows investors to make better decisions and become more efficient by decreasing risks and investing only in companies with high growth potential. Additionally, firmographics can be used to mitigate risks, identify challenges, and make predictions, so you can easily outperform the market.