June 23, 2022

Late 2022 / Spring 2023: A Warning

Allow me to show you what is happening to too many of you. Let's pretend you run a really small business.

As of 2/28/2020, you might have possessed the following customer metrics.

  • 100 12-Month Buyers The Year Prior.
  • 30% Rebuy Rate and $200 Spend per Repurchaser.
  • Year Prior = 60 New/Reactivated Buyers Spending $120 Each.
  • 100 * 0.30 * $200 + 60 * $120 = $13,200 Net Sales, 90 Customers Total.
Then the COVID-bump happens. Things go bonkers.

  • 90 12-Month Buyers.
  • 33% Rebuy Rate and $200 Spend per Repurchaser.
  • 90 New/Reactivated Buyers Spending $120 Each.
  • 90 * 0.33 * $200 + 90 * $120 = $16,740 Net Sales, 120 Customers Total.
We think life is good ... other than the dying part and the illness part and the pointless hatred for each other because of political beliefs. Otherwise, life is/was good. Until life wasn't good. Until prices started to increase in late 2021. Until new/reactivated buyer counts began to fade. As of today, our data looks like this.
  • 120 12-Month Buyers.
  • 26% Rebuy Rate and $220 Spend per Repurchaser.
  • 55 New/Reactivated Buyers Spending $130 Each.
  • 120 * 0.26 * $220 + 55 * $130 = $14,014 Net Sales, 86 Customers Total.
Our little business, which had $13,200 in sales two years ago and $16,740 a year ago now has $14,014 in sales. Better than two years ago, but oh oh. And our little business had 100 buyers, then 90 buyers, then we improved to 120 buyers, and now we have 86 buyers. We've lost all of our file power, haven't we? File power is important, because next year's sales are connected to how many customers we have at the end of this year.

Worse, our rebuy rates are impacted by rising prices ... down to 24%. New/Reactivated buyer counts were at 60 two years ago, then 90 COVID-infused newbies a year ago, then just 55 due to the price increase.

Now we have to forecast what happens in the next year. Well, prices are much higher, so we'll forecast a 24% rebuy rate, $230 spend per repurchaser, just 45 new/reactivated buyers, and $140 sales per new/reactivated buyer. Fewer customers, but more spend per customer.

What does the next year look like?
  • 86 12-Month Buyers.
  • 24% Rebuy Rate and $230 Spend per Repurchaser.
  • 45 New/Reactivated Buyers Spending $140 Each.
  • 86 * 0.24 * $230 + 45 * $140 = $11,047 Net Sales, 66 Customers Total.
This is what the end of the COVID-bump combined with an increase in prices means.

Sales by year:
  • $11,047 forecasted for the next twelve months.
  • $14,014 for the year ending June 23, 2022.
  • $16,740 for the year ending June 23, 2021.
  • $13,200 for the year ending June 23, 2020.
Tell me what happens when we get to October and the forecast becomes reality?

Many e-commerce brands will be able to outrun this forecast ... they'll find ways to generate new customers, as they have for the past twenty years.

Many traditional catalog brands will not be able to outrun this forecast. By not developing sufficient online marketing capabilities, the contraction currently being observed will be amplified by a lack of paper. The very vendors demanding that catalogers mail paper instead of embracing online marketing will hasten this dynamic.

This blog post is a warning. There is time to do something about what is coming. Expense increases paired with sales declines = trouble.

Trouble.

I've spent much of the past eight years advocating for strong customer acquisition programs. Fall/Winter 2022 will belong to those who have a strong customer acquisition program.

You are a Leader. You have time to address this challenge. Be a Leader.

P.S.:  If you need forecasting help, let me know (kevinh@minethatdata.com).

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