September 12, 2023

FORECASTING SEASON: Somebody Wants To Squeeze More Juice Out Of The Lemon

You'll hear that quote - I've been hearing it since starting my consulting practice in 2007.

Across a thirty-five year career, I've learned that there is a clear relationship between Rebuy Rates, Orders per Repurchaser, and Average Order Value. The relationship looks like this:



This is one of the most important tables I've ever created - I use it to help leaders understand the relationship between rebuy rates and orders per buyer per year.

At a 20% annual rebuy rate, customers on average purchase 1.7 times per year. With an average $122 AOV, a customer in a business model with a 20% rebuy rate will generate $42.06 in annual sales.

At a 30% annual rebuy rate, customers on average purchase 1.9 times per year. With an average $121 AOV, a customer in a business model with a 30% rebuy rate will generate $70.49 in annual sales.

At a 40% annual rebuy rate, customers on average purchase 2.3 times per year. With an average $120 AOV, a customer in a business model with a 40% rebuy rate will generate $109.30 in annual sales.

At a 50% annual rebuy rate, customers on average purchase 2.8 times per year. With an average $119 AOV, a customer in a business model with a 50% rebuy rate will generate $167.96 in annual sales.

At a 60% annual rebuy rate, customers on average purchase 3.8 times per year. With an average $118 AOV, a customer in a business model with a 60% rebuy rate will generate $271.20 in annual sales.

Do you see what is happening as rebuy rates increase?

As rebuy rates increase, existing buyer momentum accelerates. Average customer spend increases from $42.06 to $70.49 to $109.30 to $167.96 to $271.20. Incremental increases are about $28, then $39, then $58, then $104.

This is where the trap happens. 

Somebody ... usually the CEO or CFO, will demand that you "squeeze more juice out of the lemon". They'll (correctly) observe that as rebuy rates increase, purchase frequency increases, and the business improves significantly.

How, exactly, are you going to "squeeze more juice out of the lemon"?

If the formula existed with your current marketing strategy and current merchandising strategy, you'd have done it ... likely a decade ago or more. You aren't dumb!

Rebuy rates (leading to increased annual purchase frequency) can be influenced by marketing - until you achieve marketing proficiency. I mean, if you didn't have a credible email marketing program, yes, your rebuy rates will increase when you implement a credible email marketing program. But eventually your marketing efforts are "credible", across the board. At this point, marketing isn't irrelevant, but it isn't the process that improves rebuy rates or purchase frequency.

At this point, your merchandise assortment can drive improved rebuy rates (and by definition, improved purchase frequency). There's a reason department stores have high repurchase rates ... there's a reason why "marketplaces" have high repurchase rates. They leverage partners to grow the merchandise assortment to a point where what is sold needs to be purchased. often ... or your assortment is so broad (Amazon) that in entirety it must be purchased often.

If you want to squeeze more juice out of the lemon, consider creating a menu that requires more lemons.



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