June 13, 2021

The End of the Salad Days

An awful lot of e-commerce brands are about to experience a trend not experienced since before COVID started.

It's the end of the Salad Days.

Let's walk through a very simple example. Pretend that your brand had a 30% rebuy rate, had 100 customers to start 2019 and acquired 70 new/reactivated buyers during 2019. Pretend each existing buyer spent $150 and each new/reactivated buyer spent $100, annually.

Here's what the old business looked like:
  • Existing Buyers = 100 * 0.30 Rebuy Rate = 30 existing buyers @ $150 each.
  • New/Reactivated Buyers = 70 @ $100 each.
  • Total Net Sales = 30*150 + 70*100 = $11,500.
  • Total Year-End Buyers = 30+70 = 100.
During COVID, let's assume you had a 35% rebuy rate and let's assume that instead of acquiring 70 new/reactivated buyers you acquire 125 new/reactivated buyers.

Here's what your COVID business looks like:
  • Existing Buyers = 100 * 0.35 Rebuy Rate = 35 existing buyers @ $150 each.
  • New/Reactivated Buyers = 125 @ $100 each.
  • Total Net Sales = 35*150 + 125*100 = $17,750.
  • Total Year-End Buyers = 35+125 = 155.
Your business is more than 50% larger during the COVID era.

Those days are coming to an end, as you already know from your in-house reporting. So let's pretend that we go back to pre-COVID metrics. Does this mean that sales go back to $11,500 as per our example above?
  • Existing Buyers = 155 * 0.30 Rebuy Rate = 47 existing buyers @ $150 each.
  • New/Reactivated Buyers = 70 @ $100 each.
  • Total Net Sales = 47*150 + 70*100 = $14,050.
  • Total Year-End Buyers = 47+70 = 117.
Sales don't go back to $11,500, but they don't stay at $17,750. Sales trend "somewhere in-between" at $14,050.

Let's move ahead another year.
  • Existing Buyers = 117 * 0.30 Rebuy Rate = 35 existing buyers @ $150 each.
  • New/Reactivated Buyers = 70 @ $100 each.
  • Total Net Sales = 35*150 + 70*100 = $12,250.
  • Total Year-End Buyers = 35+70 = 105.
After two years the bump is virtually gone.

Let's move ahead to a third year.
  • Existing Buyers = 105 * 0.30 Rebuy Rate = 32 existing buyers @ $150 each.
  • New/Reactivated Buyers = 70 @ $100 each.
  • Total Net Sales = 32*150 + 70*100 = $11,800.
  • Total Year-End Buyers = 32+70 = 102.
I'll recap annual net sales in our example:
  • 1-2 Years Ago = $11,500.
  • COVID Year = $17,750.
  • Next Year = $14,050.
  • 2 Years Ahead = $12,250.
  • 3 Years Ahead = $11,800.
The COVID era ... the Salad Days, they're going to end.

However, even with comparable customer productivity, you'll get a sales bump because of all of those customers you acquired during COVID. Those customers will pay you compound interest for a few years.

But ... but ... eventually your business goes right back to where it was. With the same customer dynamics as before COVID the trend is inevitable.

So this leads me to a handful of questions.
  1. Have you measured this dynamic? If not, email me (kevinh@minethatdata.com) and I'll get it measured for you.
  2. Have you planned your inventory metrics around this concept? If not, now is a good time to adjust your plans.
  3. Unless you fixed core issues with your business, your business is going to slowly lope back to where it was during Calendar 2019. The trend is unavoidable.
Questions?

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