1 - Actual e-commerce customer data is indicating that the "COVID-bump" is ending.
This creates all sorts of interesting dynamics that are going to play out over the next two years.
This creates all sorts of interesting dynamics that are going to play out over the next two years.
2 - Let's pretend that we have a business where the annual repurchase rate is 30%, there are 70 new customers per year, and there were 100 12-month buyers at the start of COVID. Let's assume that each customer spends $100 a year for simplicity sake.
3 - So, at the end of the year just prior to COVID, we had the following situation.
100 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 100 = 30.
New Buyers = 70.
Total Buyers = 30 + 70 = 100.
Spend per Customer = $100.
Total Sales = 100 * $100 = $10,000.
100 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 100 = 30.
New Buyers = 70.
Total Buyers = 30 + 70 = 100.
Spend per Customer = $100.
Total Sales = 100 * $100 = $10,000.
4 - Ok, during the COVID year, the following happened.
Rebuy Rates = 35%, not 30%.
New Buyers = 130, not 70.
What did this mean for the brand?
Rebuy Rates = 35%, not 30%.
New Buyers = 130, not 70.
What did this mean for the brand?
5 -
100 buyers.
Rebuy Rate = 35%.
Existing Buyers = 0.35 * 100 = 35.
New Buyers = 130.
Total Buyers = 35 + 130 = 165.
Spend per Customer = $100.
Total Sales = 165 * $100 = $16,500.
Sales grew 65%.
Weeeeeeeeee!
100 buyers.
Rebuy Rate = 35%.
Existing Buyers = 0.35 * 100 = 35.
New Buyers = 130.
Total Buyers = 35 + 130 = 165.
Spend per Customer = $100.
Total Sales = 165 * $100 = $16,500.
Sales grew 65%.
Weeeeeeeeee!
6 - Ok, now business reverts back to normal.
Do net sales revert back to normal?
No!
Do net sales revert back to normal?
No!
7 -
165 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 165 = 50.
New Buyers = 70.
Total Buyers = 50 + 70 = 120.
Spend per Customer = $100.
Total Sales = 120 * $100 = $12,000.
165 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 165 = 50.
New Buyers = 70.
Total Buyers = 50 + 70 = 120.
Spend per Customer = $100.
Total Sales = 120 * $100 = $12,000.
8 - The business doesn't stay at $16,500 COVID-inflated net sales dollars.
But the business doesn't go back to $10,000 of normal net sales dollars per year, does it?
You get $12,000 - $10,000 = $2,000 of "compound interest" from the bump in COVID customers.
But the business doesn't go back to $10,000 of normal net sales dollars per year, does it?
You get $12,000 - $10,000 = $2,000 of "compound interest" from the bump in COVID customers.
9 - Every company is going to have to thoroughly understand this dynamic, and will have to quantify it and then buy inventory to this level.
If you don't do this level of work (which is rather simplistic, don't you think?), then you are at risk.
If you don't do this level of work (which is rather simplistic, don't you think?), then you are at risk.
10 - What happens next year?
120 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 120 = 36.
New Buyers = 70.
Total Buyers = 36 + 70 = 106.
Spend per Customer = $100.
Total Sales = 106 * $100 = $10,600.
The business reverts closer to normal.
120 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 120 = 36.
New Buyers = 70.
Total Buyers = 36 + 70 = 106.
Spend per Customer = $100.
Total Sales = 106 * $100 = $10,600.
The business reverts closer to normal.
11 - Two years from now?
106 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 106 = 32.
New Buyers = 70.
Total Buyers = 32 + 70 = 102.
Spend per Customer = $100.
Total Sales = 102 * $100 = $10,200.
106 buyers.
Rebuy Rate = 30%.
Existing Buyers = 0.30 * 106 = 32.
New Buyers = 70.
Total Buyers = 32 + 70 = 102.
Spend per Customer = $100.
Total Sales = 102 * $100 = $10,200.
12 - So we have a business with the following dynamics.
Last Year = $10,000.
COVID Year = $16,500.
Next Year = $12,000.
Year Two = $10,600.
This is the impact of the "COVID-bump".
You get the benefit of the bump.
Then you get compound interest at ever-decreasing rates.
Last Year = $10,000.
COVID Year = $16,500.
Next Year = $12,000.
Year Two = $10,600.
This is the impact of the "COVID-bump".
You get the benefit of the bump.
Then you get compound interest at ever-decreasing rates.
13 - The lower your annual repurchase rate (i.e. anything under 40%), the less of a "compound interest" effect you enjoy.
The higher the rate (i.e. above 60%), the greater the impact of the bump over time and the longer the bump lasts into the future.
The higher the rate (i.e. above 60%), the greater the impact of the bump over time and the longer the bump lasts into the future.
14 - Show of hands, how many of you understand the math here? (hint - all of you).
Show of hands, how many of your e-commerce brands measure the dynamics illustrated here and then do something about it?
Show of hands, how many of your e-commerce brands measure the dynamics illustrated here and then do something about it?
15 - P.S.: This example shows you why Customer Acquisition is so critically important and why Customer Loyalty initiatives are typically feckless. Utterly feckless.
Focus your marketing department on finding new customers ... and never take your foot off the gas pedal.
Focus your marketing department on finding new customers ... and never take your foot off the gas pedal.
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