March 13, 2007

Online Momentum: Will Your Online Business Continue To Grow?

My guess is that your online business enjoyed sales increases of between ten and fifty percent, on average, during calendar year 2006. That's something to feel good about!

How much "momentum" does your online business have? In other words, does your online business have the customer base necessary to fuel future growth? An important element of any Multichannel Forensics analysis is the measurement of the momentum of the business.

Momentum can be defined as the future sales expected from three segments of customers.
  • All-Stars, the "best" online customers as defined by the corporation during the past twelve months. For instance, a business like Cabellas could define "All-Stars" as any customer who spent $750 or more in the past twelve months. It is important to use twelve month metrics, as the time period mitigates any seasonal concerns.
  • Periodics, online customers who have purchased in the past twelve months, but are not high spenders. These buyers purchase "periodically". In our example, these might be customers who spent less than $750 in the past twelve months.
  • Newbies, customers not in the All-Star or Periodic segments. This is a forecast of how many additional customers we expect to purchase in the next twelve months.
The multichannel analyst groups customers into All-Stars and Periodics, based on 2005 activity. Next, the multichannel analyst measures the average online spend of these customers during 2006.

Armed with this data, the multichannel analyst counts the number of All-Stars, and the number of Periodics as of today's date. The multichannel analyst forecasts the expected number of Newbies over the next twelve months.

Finally, the multichannel analyst produces a table similar to the one at the end of this article. The key is to compare at least two different time periods. The multichannel analyst might measure the customer file as of February 1, and again on March 1. By applying 2006 spend activity to each of the segment counts, the multichannel analyst is calculating the future sales value of today's file.

Divide current period future sales by future sales estimated in the last period, and you have what is referred to as "Momentum".


Multichannel CEOs and CMOs: In the next one to five years, the online channel will slow down to a normal growth rate. It will be important to identify when this inflection point begins to happen, and to begin slowing the rate at which inventory is purchased for the online channel. On Wednesday morning, work with your multichannel analyst on developing a "Momentum" reporting template.


Sample Momentum Reporting


Reporting From Last Month


Future Fut. Value

Households Sales/HH (000s)
All-Stars 10000 $500.00 $5,000
Periodics 90000 $150.00 $13,500
Newbies 50000 $250.00 $12,500
Total Value

$31,000








Reporting As Of This Month


Future Fut. Value

Households Sales/HH (000s)
All-Stars 10295 $500.00 $5,148
Periodics 91572 $150.00 $13,736
Newbies 52000 $250.00 $13,000
Total Value

$31,883









This Month's Estimate $31,883

Last Month's Estimate $31,000

Momentum
2.85%

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