March 08, 2020

Personalization = File Power

I've told this story before, but the story is so juicy that one can't help but tell it again.

Years ago, I'm sitting in an Executive Meeting. An analyst ... a little 'ole analyst ... is presenting findings from her personalization work. She's probably making \$60,000 a year and yet she personalized emails and the home page and landing pages with the merchandise a customer wants to purchase. Her work "works" ... not like the nonsense pundits tell you to do ... her stuff actually causes customers to respond almost 50% better.

Because of personalization.

She figures that she's impacting 20% of e-commerce transactions by almost 50% ... in other words, she and she alone is causing e-commerce sales to increase by 10%.

Think about her work this way.
• Base Case = \$50,000,000 net sales at a 35% profit factor, \$7.5 million ad cost, \$8,000,000 fixed costs ... Profit = \$50,000,000*0.35 - \$7,500,000 - \$8,000,000 = \$2,000,000.
• Personalization = \$60,000,000 net sales at a 35% profit factor, \$7.5 million ad cost, \$500,000 personalization software cost, \$8,000,000  fixed costs ... Profit = \$60,000,000*0.35 - \$7,500,000 - \$500,000 - \$8,000,000 = \$5,000,000.
Without personalization = \$2,000,000 profit.

With personalization = \$5,000,000 profit.

This analyst, at \$60,000 per year, is generating \$3,000,000 of annual profit ... profit that the Executive Team is going to get to share via bonus payouts of close \$200,000 each.

How do you think the Executive Team responded to this finding?

After her presentation, they mocked the analyst.

"She doesn't get it."

"When she personalizes what a customer sees, she destroys the essence of 'the brand'".

"How will the customer see new merchandise if all she ever does is present best sellers to customers to boost conversion rates?"

Even the analyst missed a key point.
• Her work caused an additional \$10,000,000 in sales, which resulted in 75,000 additional customers. Those customers would generate \$5,000,000 in additional sales / File Power next year, causing another \$1,200,000 profit after factoring in incremental ad costs.
This happens EVERY DAY, folks.

Analysts missing key benefits of their work.

You've got to study File Power if you want to understand how your business truly behaves. If you aren't studying File Power, you are harming your business.