Customer Development: Putting All Pricing Factors Together

We built three relationships:

If we multiply all three factors together, we get a picture of how much a customer is worth. If rebuy rates are lower and orders per year are lower and items per order are lower but the price of an item is higher, the customer can potentially be worth more.

Pretend that prices currently average $9.00 per item.

• Fitted Rebuy Rate is 20.4%.
• Fitted Orders per Year is 1.594.
• Fitted Items per Order is 5.315.
• Calculated AOV = $47.84.
• Next Year Sales = $9.00 * 0.204 * 1.594 * 5.315 = $9.73.

Pretend that you are forced to raise prices to an average of $10.00 per item.

• Fitted Rebuy Rate is 19.7%.
• Fitted Orders per Year is 1.576.
• Fitted Items per Order is 5.054.
• Calculated AOV = $50.54.
• Next Year Sales = $9.00 * 0.204 * 1.594 * 5.315 = $9.97.

In our example, net sales per twelve-month buyer are forecasted to increase (from $9.73 to $9.97). Net sales increase. Now, if cost of goods increased more than the $0.24 gain, then the net result is negative.

But that's how I put the pricing/forecasting work together for you in a Customer Development project.

Contact me now (kevinh@minethatdata) for your own personalized Customer Development project.