- 59% for Prior Category Buyers.
- 60% for Prior Buyers, No Category Experience.
- 60% for New/Reactivated Buyers.
- 38% for Prior Category Buyers.
- 44% for Prior Buyers, No Category Experience.
- 46% for New/Reactivated Buyers.
There are more, obviously, but we can simplify the story down to three, using our Category Analysis Table.
One of the most enjoyable tables I run in a Hillstrom's Profit analysis is the Category Buyer Analysis table. Here it is:
Tomorrow we'll begin to dissect the information. There's a lot here and it means a lot when determining why a category is performing well or performing poorly.
Most of you measure Average Order Value ... AOV as it is often known. Your e-commerce business utterly depends upon the measurement of this metric.
How many of you track "Average Margin Value", or "AMV"?
Instead of summing up the amount the customer spent (three items ... $30, $30, $40 = $100), you sum up the amount of gross margin generated by the customer in that order ($18, $12, $22 = $52).
Too often, we provide 40% off with a hurdle, then celebrate a big order of $120. Let's pretend that your gross margin is 50%.
Allow me to share gross margin percentages by marketing channel for this brand. Tell me if you see something interesting:
Here's an issue I recently analyzed ... let's say an item costs $50 and the cost of goods sold are $30, netting the brand a $20 gross margin on the item.
Second issue ... the item costs $50 and the cost of goods sold are $30, but the brand sells the item for $40, leaving only $10 gross margin on the item.
Why do we care about the two issues above?
Well, past gross margins predict future gross margins. In other words, I created a regression equation for a brand where I had two independent variables (gross margin dollars, cost of goods dollars) and one dependent variable (future gross margin dollars). Here's what the equation said:
Always look out for the way you treat low priced items. Example:
Ok, three things (click here).
1) If they can name a product "Car Thing", you can be creative,
2) It sounds like Spotify disabled interfaces on some car stereos (i.e. Spotify Connect), making this product more amenable ... in essence, they killed a free function and are charging for what used to be free.
3) If they can create a product that acts as an interface between your car and phone when your phone already interfaces with your car and charge $89 for it, you can be creative as well.
Here's some data I analyzed recently ... tell me what you observe when it comes to gross margin percentage:
Profit is highly dependent upon the gross margin of the products we sell.
You already know that, of course.
But do you ever actually analyze the situation?
Here are the top 500 selling items for a brand. What does the regression line tell you?
Now I get it ... you're going to tell me all the reasons why certain items have to be priced at a certain level, compromising gross margin percentages. I get it.
But the marketers in the audience, given two equal items, should promote the item that has a better gross margin percentage, correct?
I shared a business that has 22 merchandise categories. I created a regression model to measure whether customers buying from each merchandise category have higher/lower future value.
High Value Categories: 5, 7, 9, 12, 18, 19.
Positive Categories: 0, 2, 3, 4, 8, 10, 11, 13, 15, 16, 17, 20.
No Value or Negative Value: 1, 6, 14, 21.
First of all, if you had to tell your merchants that four categories out of 22 delivered no increase in future value, you'd be run out of your meeting quickly, don't you think?
But second of all, you should also look at future gross margin dollars ... not future sales. Future gross margin dollars.
High Value Categories: 12, 19 (remember, these two categories are loved by all customers).
Positive Categories: 7, 8, 11,18, 20.
No Value or Negative Value: 0, 1, 2, 4, 6, 9, 10, 13, 14, 15, 16, 21.
12 of the 22 categories do not deliver future positive gross margin dollars, based on a regression analysis.
As a marketer, you have a responsibility to share categories (particularly on your home page and in your email marketing campaigns) that deliver customers likely to generate positive gross margin dollars in the future. That's you job. If you aren't performing this style of analysis, you are hurting future profit ... that's on you, not your merchandising team.
Your customers tell you specifically what their future preferences are.
The table below has one row for each merchandise category a customer purchased from last year. Each column represents the percentage of next year's sales that are generated by category.
Take a look. Click on the image - it is small and contains a lot of data.
Here's a trend I'm seeing now.
In 2021 it was hard to source new merchandise (for some). This means that there were fewer new items sold in 2021, and less sales from new items in 2021.
Now it is 2022. Those new items have become existing items. Guess what? Those items are delivering reduced sales in 2022.
Example: Your brand might expect to offer 100 new items in 2021 and generate $10,000 per new item. 100 * $10,000 = $1,000,000. The following year those items generate 120% of the sales of the year prior. Therefore, 2022 should show $1,000,000 * 1.2 = $1,200,000.
You have the merchandise - that's the most important stage. If you get your merchandise right, everything else is much easier.
You have brand presentation - this is a lost art. Think of what Progressive does with their TV commercials. Then think of a 20 second Discovery+ video ad on hoseheads.com. That's the opposite.
You have marketing channels ... the lowest common denominator of marketing.
Merchandise > Brand Presentation > Marketing Channels.
If you fix your merchandise assortment, your brand presentation works better and your marketing channels work better. You stack benefit upon benefit. This causes profit to significantly increase.
If you fix the Brand Presentation, you've done good work, but you haven't fixed your merchandise assortment. Yes, your marketing channels will work better and you will generate more profit, but if the customer doesn't want widgets you won't solve customer dislike of widgets by focusing on Brand Presentation.
If you fix Marketing Channels, you might earn a promotion within your marketing team. But you haven't fixed your merchandise assortment, and you haven't fixed brand presentation.
Each brand stage requires different employees working together in different ways to achieve a common goal. You are capable of managing each Brand Stage. Go get the job done!
Consultants get to see profit and loss statements. They know what to look for when reviewing a p&l.
Because of my preference for marketing, I look at the ad cost line. There are two kinds of companies.
In addition to providing Virtual Analytics Officer services (click here), I will begin describing what will become a new product offering - called "Hillstrom's Profit" ... a fusion of Customer Development and Product Preference work I have been performing recently.
During the "COVID-bump" period of 2020, we observed how important the Customer Development aspect of profit became. In 2021, supply chain issues illustrated how important Operational Excellence is. In 2022, war is the issue - which means that customers prioritize what they "need" over what they "want". In other words, Merchandise becomes really, really important.
So tomorrow we'll start talking about how various issues impact profit. The easy profit days of 2020 are over, and you are going to need to understand how profit is impacted by your decisions.
Fifteen years ago this week I launched MineThatData. Within five days I had a $40,000 project agreed upon ... days later I was off an running.
Fifteen years ago!
Think of what has happened between then and now?
As we start year sixteen, I want to offer you, the loyal reader, something different. For fifteen years I've worked on "projects" ... specific assignments based on something I've created ... based on the perceived needs of you, the loyal reader.
So here it goes. Let's perform a trial. I will agree to work on your advanced analytics issues ... whatever you need analyzed at an advanced level I'll analyze for the next three months at a 1/3rd time commitment. In other words, you get me for thirteen hours a week for three months. If we both agree that the three month trial went well and wish to extend it, we can do that as well.
Contact me quickly (firstname.lastname@example.org) because there will likely be multiple offers for this opportunity. On my project pricing page, this is called the "Virtual Analytics Officer" project (click here).
Happy Anniversary everybody!
P.S.: You are probably wondering, "what kind of work won't Kevin do?" I don't build databases, create dashboards, build database tables, write code in your preferred language, build campaigns, or execute campaigns. I don't write SQL to extract data from your database - you don't want an external consultant touching your database, do you? If you want me to analyze your key business issues on call, I'm here. If you want me to explain to your Executive Team what is happening, I'm available. If you want me to mentor your staff, I'm available. If you need help leading your team, I'm available. If you are a vendor looking for insight into how I do what I do, I'm available. If you can extract the information for me in a .csv file, I'm available to help you.
Back in 2005 Google Analytics did something that ultimately happens in most industries. They created a "standard" for how digital data gets analyzed. It no longer mattered that other people had better solutions, or customized solutions. Google told you what "the" solution was. End of story.
Over on my newly created pickleball analytics blog, a reader asked me what I thought a future "Pickleball Box Score" would look like? In other words, baseball / basketball / football all have box scores that outline who won, and summarize what the allegedly important statistics are. The reader was astute enough to foresee a future where somebody creates the standard used for analyzing pickleball matches.
Once the standard has been created, a market opens up ... for advanced analytics. The NFL / NBA / MLB all are supported by organizations turning out advanced metrics ... for a fee. Just because a MLB player (assuming there is an MLB season) goes 1-3 doesn't mean the MLB player had a good day. Did he swing at bad pitches and get lucky? Did he swing at good pitches and strike out? The dashboard / box score can't tell you those answers.
For nearly fifteen years, I've made a living going beyond the box score.
If your dashboard is a summary of what Google Analytics tells you to look at, you haven't done anything special. You've done something practical, sure, but not special.
In the next few years, you are going to see an evolution in Dashboards ... you'll have introductory views of customer behavior ... and then you'll have advanced views of customer behavior. Marketers currently refer to these advanced views as "journeys" ... that aspect of analysis is in the embryotic stages of the life of information.
Exciting times are coming, folks!!
Yesterday we evaluated a healthy business.
Today we'll explore a comparison between a healthy business and an unhealthy business. In both cases, the brand generates $100,000,000 in demand. The problem is what comes "after" demand is generated. Take a look.
The business on the right can't do anything right. They have more cancels, and their customers return more merchandise than the brand on the left. They have to liquidate more merchandise, resulting in a 54% gross margin instead of 60%. Pick/Pack/Ship expenses consume an additional three percentage points of net sales. The company spends $1.4 million more on marketing and gets nothing for it. There's nearly a million more in fixed costs.
As a result, the brand on the right operates at break-even with a 32% profit factor ... significantly different than the brand on the left which generates $11.9 million in earnings before taxes at a profit factor of 42%.
The brand on the right has a lot of work to do. A new CEO would look at this as a hot mess capable of "being fixed".
These are fun businesses for Management Teams to inherit, because they can be "fixed".
"Fixed", of course, as long as company culture will allow the brand to be fixed.
Eleven years ago I spoke at NEMOA about the importance of Judy / Jennifer / Jasmine as key shoppers within a traditional catalog brand (hint...