May 06, 2020

Adjusting Winners

Let's say you run a $50,000,000 business.
  • 280,000 annual customers.
  • A Winning Item is classified at one that generates at least $75,000 a year in sales.
  • You have 50 winning items.
In 2020 let's say that you "hit the covid lottery" ... you operate a business model that sells stuff that a customer needs to get through a pandemic. Your forecast for the end of the year looks different than it does at, say, J. Crew, right?
  • $65,000,000 in annual sales.
  • 360,000 annual customers.
  • You now have 70 winning items ... items generating > $75,000 a year in sales.
Do you really have 70 winning items?

No.

You probably still have +/- 50 winning items.

Notice that sales increased by 30% ... and customers increased by 29%. Your growth isn't item-driven, your growth is customer driven.

Instead of having a sales threshold for determining winners, have a sales-per-customer threshold for determining winning items.
  • If an item generated $75,000 annual sales and you had 280,000 annual customers, this means you generated (75,000 / 280,000) * 1,000 = $267.86 per thousand customers.
That's your cutoff ... $267.86.

Let's say that an item is forecast to generate $90,000 this year ... remember, you are also forecasting 360,000 annual customers:
  • (90,000 / 360,000) * 1,000 = $250.00 per thousand customers.
The item did $15,000 better than the current winning "level" ... but on a per-thousand-customers basis the item was nearly $18 shy of what is needed for it to be classified a Winner.

In crazy times, you need to adjust your criteria for a Winning Item. Standardize your metrics based on how many annual buyers you have, as a starting point, ok?

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