External data is only worth the cost if the value you get from the data is more than the purchase price. With that said, the right external data can make a big difference! One great tax example is “Use Tax”. If you can buy external data with company information like square footage, inventory size, credit score, and employee count then estimating Use Tax using a predictive model becomes much easier. One of our clients increased the predictive capability of the Use Tax models by 10%. That may not sound like much, but if you are going from 75% to 85% confidence in a predictive model, it is huge!
If you are on the Personal Income Tax side of the organization, we suggest you purchase IP information. IP data contains a lot more than just the IP address. It includes the name and location of the service provider (country, region, state, and city). IP information is really useful in creating fraud models but most organizations don’t purchase it on a regular basis. If you buy IP data, we recommend getting a subscription that updates your files on a regular basis.
Whether you are buying business or IP data, the “magic” happens when the external data is “matched” to your internal data. Be warned, however, if you buy external data and can’t match it to the data you have, it becomes instantly useless. So be sure that you have data matching software available BEFORE you buy, or have access to some data professionals that can match it for you.
When you contact XDS, be sure to ask us about our experience with using external data. We are experts at finding it and making it work in your environment.
