September 09, 2013

Cyber Monday Tip #1

I know, you're pushing your chips all-in on Cyber Monday. You "have" to, in order to remain competitive. Or so you tell me. And the press love it - you give away 35% plus free shipping, they make ad dollars by yelling about it.

So let's take some time to share a few tips with you.

First, I want you to analyze how business shifts over time. Compare 2008 to 2012, and look at three time periods:
  • Month of November Demand, Excluding Cyber Monday.
  • Cyber Monday Demand.
  • Month of December Demand, Excluding Cyber Monday.
Here's an example I witness, often:
  • 2008 November = $10,000,000.
  • 2008 Cyber Monday = $1,000,000.
  • 2008 December = $9,000,000.
  • 2008 Seasonal Totals = $20,000,000.
So far, so good. Now let's look at 2012:
  • 2012 November = $9,000,000.
  • 2012 Cyber Monday = $2,500,000.
  • 2012 December = $9,000,000.
  • 2012 Seasonal Totals = $20,500,000.
What do you observe?

If all things are equal, then Cyber Monday grew from $1,000,000 to $2,500,000 ... but the total business grew by $500,000.

This tells us that $500,000 / $1,500,000 = 33% of Cyber Monday business is truly incremental, and new to the business.

In other words, you gave away the farm (i.e. 30% off plus free shipping) to gain $1,500,000 of business, when $1,000,000 of it would have happened anyway.

Your profit and loss statement is likely to look like a catastrophe, assuming you give free shipping away in Nov/Dec - assuming the 30% off is due to Cyber Monday.
  • Incremental Demand = $500,000.
  • Discounts on Gain of $1,500,000 = $450,000.
  • Gross Margin = 50% = $250,000.
  • Net Contribution = $500,000 - $450,000 - $250,000 = ($200,000).
So - Tip #1 is an easy one ... quantify how much of Cyber Monday is incremental, is truly new business. Run a profit and loss statement (the one above is terribly simplistic, for illustrative purposes), and measure if you are actually helping your business.

Contact me (kevinh@minethatdata.com) for your own Cyber Monday analysis.