Many nervous executives are going to ask what you can do to help lift business out of this slump.
A good place to start is to diagnose how various segments of customers are performing, year-over-year.
For instance, let's assume you have a segment of customers that is considered "best". During October 2007, you observed this level of performance:
- Number of Households On 10/1/2007 = 100,000.
- Percent Who Purchased In October 2007 = 15.0%.
- Spend Per Purchaser, October 2007 = $100.00.
- Net Sales Per Household, October 2007 = 0.15 * 100 = $15.00.
- Total Sales = 100,000 * 15.00 = $1,500,000.
- Number of Households On 10/1/2006 = 105,000.
- Percent Who Purchased In October 2006 = 16.0%.
- Spend Per Purchaser, October 2006 = $97.00.
- Net Sales Per Household, October 2006 = 0.16 * 97 = $15.52.
- Total Sales = 105,000 * 15.52 = $1,629,600.
- Number of Households = -4.8%.
- Percent Who Purchased In October = -6.2%.
- Spend Per Purchaser In October = +3.0%.
- Net Sales Per Household = -3.3%.
- Total Sales = -8.0%.
- More than half the problem occurred because there are fewer "best" customers compared with last year.
- The rate at which best customers purchased in October dropped by 6.2%. That's not good.
- Sales were helped some by spend levels that actually increased by 3%.
"marginal" customers, and new/reactivated customers.
You want to identify where your shortfall is occurring. If you see the same trends across all segments, you have brand weakness or overall economic pressures suppressing your performance.
But if some customers are impacted, while others continue to perform well, you have unique challenges. If you're best customers are performing well, while marginal, new and reactivated customers are under-performing, you may have a portion of your customer base "trading down" to other brands they can afford, as an example.
If business stinks long enough, you'll notice a trend where all metrics look good, but there aren't enough customers to fuel growth. Called "file momentum", this is one of the more frustrating challenges merchants face --- they fix business problems, but have to wait to see the fruits of their labor.
As business conditions erode, be sure to stay on top of the metrics that tell you which customers are under-performing.
I'll note that the roughly 3% y/y increase in spend-per-purchaser is right about inline with inflation figures per the CPI. Which means in real terms, spend per purchaser is flat. That also means that the total sales loss is bigger than people might initially think. It all adds up to bad news.ReplyDelete
Yup, that's another possibility.ReplyDelete
What have you found when you do this kind of analysis?