September 29, 2013

Dear B2B Catalog CEOs: Average Order Value

Dear B2B Catalog CEOs:

Hi there - a special message just for you!

B2B cataloging is a bit different than B2C cataloging. Not as different as the pundits would have you believe, but different enough to create unique surprises.

Average Order Value is one of those surprises.

In B2C, you're likely to see something like this:
  • Response Rate = 2%.
  • Average Order Value = $130.
  • Dollar per Book = $2.60.
  • Book Cost = $0.50.
  • Profit Factor = 40%.
  • Profit per Book = $0.54.
In B2B, you're likely to see something like this:
  • Response Rate = 1%.
  • Average Order Value = $600.
  • Dollar per Book = $6.00.
  • Book Cost = $0.50.
  • Profit Factor = 40%.
  • Profit per Book = $1.90.
Average Order Value plays a major role in B2B catalog marketing. For B2B folks, AOV is dramatically bigger than it is for B2C. This causes each individual catalog to simply be more profitable, even if response rates are half or less of what is observed in B2C marketing.

As a result, the catalog must be part of the B2B marketing strategy, even if almost nobody responds to it.

It addition, large AOVs allow page counts to be inflated, compared to the B2C world where page counts are going to be pushed down in Darwinian manner.

When I started my consulting work back in 2007, the differences in circulation strategy between B2B marketers and B2C marketers were not all that much different. In 2013, for B2B marketers with large AOVs, the catalog marketing strategy is frequently going "Back to the Future", if you will - large AOVs promote a 1990 style catalog marketing strategy, opposite of almost every piece of advice you get anywhere else.

This only happens, of course, if your AOV is greater than about $400.

Ponder the consequences of AOV - B2B vendors love to capitalize on large AOV's, and for good reason.

3 comments:

  1. Aaah! The secret is exposed after all these years! This is precisely the reason why thinking entrepreneurs choose B2B and always have. And, over time, the earnings are more stable and the valuation of the businesses more reliable. B2B is STILL fertile ground for cataloging as well as solid online marketing. And B2B is essentially free from styles, fads, whims and the fickleness of B2C. After all, safety goggles, pens, auto repair parts, computer cables, and shipping boxes don't change all that much. And these high AOV, high margin, stable businesses with highly definable and loyal customers are much easier to sell when it is time for the "harvest event." Give me B2B over B2C any day!

    ReplyDelete
  2. A quick search for AOV on Twitter found just one mention, just one, of the acronym "AOV" in the past 30 days. One! No wonder it's so hard for folks to generate profit.

    ReplyDelete
    Replies
    1. And a follow up - eliminating my comments, a total of 15 people mentioned the phrase "average order value" on Twitter in the past 30 days. 15.

      Delete

Note: Only a member of this blog may post a comment.

Two $25 Items or One $50 Item??

Both tactics lead to $50 in your pocket. In most projects, however, the customer who buys two $25 items has better future value than th...