November 01, 2010

New E-Commerce Metric: VORP

In baseball, there is a metric called "VORP", or "Value Over Replacement Player".  Simply put, the metric quantifies the number of wins a player contributes on an annual basis, above and beyond a typical replacement player.

In e-commerce, there's no reason why you shouldn't be measuring "VORP", or "Value Over Replacement Product".

Take one of your landing pages.  You feature twelve items.  Every visitor to the landing page views each item.  You measure demand for that item after the customer views the landing page, divided by the number of people who visit the landing page.
  • Example:  Item #1 = $30,000 demand divided by 100,000 views = $0.30.
  • Example:  Item #2 = $20,000 demand divided by 100,000 views = $0.20.
Let's pretend that you've determined that randomly putting any item on that landing page yields you $0.17.

Armed with that information, VORP is calculated as follows:
  • Item #1 VORP = $0.30 - $0.17 = $0.13.
  • Item #2 VORP = $0.20 - $0.17 = $0.03.
So, the first item generates $0.13 * 100,000 = $13,000 of VORP.

The second item generates $0.03 * 100,000 = $3,000 of VORP.

VORP is the metric that you use to determine the incremental value of any product on any landing page, or on your home page.  It is the metric that marketers use to protect themselves from merchants looking to hijack the home page with products that may not resonate with the customer.