December 17, 2012

The Fiscal Cliff

How do you know if your business is heading off the fiscal cliff?

Certainly free cash flow and profitability matter.  Those are the easy ones.

There are three metrics that I look at.  All three are telling:
  1. An unplanned drop in new customer acquisition.
  2. An unplanned drop in the annual repurchase rate among 1x buyers last year (not loyal buyers, but those with only 1 purchase last year).
  3. A planned increase in Average Order Value that is achieved.
I saw all three at Nordstrom, back in late 2006 and early 2007.  Not a soul would listen to me, of course, because we were posting +5% comps.  All three were harbingers of the impending collapse of the global economy.

Be wary when you hear Management talk about planned strategies to increase Average Order Values.  The parallel in the fiscal cliff debate is raising taxes on those who can afford it ... regardless whether you believe that is right or wrong, all organizations facing a cash crisis look to "squeeze more out of the lemon", as an Executive recently told me.  It's logical to try to get more out of those who can seemingly afford it.  In e-commerce, that's what increasing AOV is all about, among your best customers.

Run your own queries, and see if any/all of these three things are happening:
  1. An unplanned drop in new customer acquisition.
  2. An unplanned drop in the annual repurchase rate among 1x buyers last year (not loyal buyers, but those with only 1 purchase last year).
  3. A planned increase in Average Order Value that is achieved.
If all three of these things are happening simultaneously, your company may be on the verge of going over the fiscal cliff.