December 02, 2013

Measuring The Wrong Stuff: Cyber Monday Demand vs Incremental Cyber Monday Profit

Instead of measuring sales and cheering the results, why not measure profit?

How many of you #measure profit? Be honest!

Here's an example:
  • 2009 = $1,000,000 demand, 60% gross margin, average discount = 10%.
  • 2010 = $1,300,000 demand, 60% gross margin, average discount = 12%.
  • 2011 = $1,700,000 demand, 60% gross margin, average discount = 16%.
  • 2012 = $2,300,000 demand, 60% gross margin, average discount = 22%.
  • 2013 = $3,000,000 demand, 60% gross margin, average discount = 29%.
Now, your favorite trade journalist will cheerlead the fact that you generated a 30% increase in demand on Cyber Monday (IT WAS A RECORD DAY, AND BRANDS REAPED THE REWARDS).

Variable Operating Profit (after subtracting 10% pick/pack/ship expense from demand):
  • 2009 = $400,000.
  • 2010 = $494,000.
  • 2011 = $578,000.
  • 2012 = $644,000.
  • 2013 = $630,000.
Oh oh.

I'll bet the CFO stops by the office of the CMO and swats him/her over the head with a rolled-up newspaper.

Worse, pretend that the sales were cannibalized from full-price sales that would have happened earlier in the month. Let's say that the cannibalization rate is 50% (which is probably close to accurate). Now look at your profit and loss statement:
  • 2009 = $150,000.
  • 2010 = $169,000.
  • 2011 = $153,000.
  • 2012 = $69,000.
  • 2013 = ($120,000).
This is the real story of Cyber Monday. It happens all the time, all across the country. 

Just ask your CFO.

If you need help evaluating your Cyber Monday effectiveness, contact me now (kevinh@minethatdata.com).