Employee Value

In sports, we look at statistics.  Statistics help us understand the value a player brings to the table.  For instance, last year, Price Fielder posted the following statistics for the Milwaukee Brewers:

• 162 Games Played.
• .299 Batting Average.
• 38 Home Runs.
• 120 Runs Batted In.
• .981 OPS (on base percentage plus slugging percentage, the metric is highly correlated with runs and wins, average is a bit over .700).

We observe statistics like that, and we say, "wow".

As a result, Prince Fielder signed a free agent contract with the Detroit Tigers, for more than $20,000,000 a year.

The numbers directly correlate to the market value of an individual.

Now, let's assume you are the CEO of a company.  You have an email manager.  This person gets things done.  The person who used to have her job posted the following metrics:

• Annual Emails Delivered = 100,000,000
• Open Rate = 20%.
• Click Through Rate (as a percentage of Opens) = 30%.
• Conversion Rate (as a percentage of Clicks) = 5%.
• Average Order Value = $100.
• Total Demand = 100,000,000 * 0.20 * 0.30 * 0.05 * $100 = $30,000,000.
• Profit Flow-Through Rate = 40%.
• Email Program Cost = $1,000,000.
• Total Profit = $30,000,000 * 0.40 - $1,000,000 = $11,000,000.

But this young lady, well, my goodness, look at what she was able to accomplish in one year, on the same size email list:

• Annual Emails Delivered = 100,000,000
• Open Rate = 22%.
• Click Through Rate (as a percentage of Opens) = 32%.
• Conversion Rate (as a percentage of Clicks) = 5.5%.
• Average Order Value = $95.
• Total Demand = 100,000,000 * 0.22 * 0.32 * 0.055 * $95 = $36,784,000.
• Profit Flow-Through Rate = 40%.
• Email Program Cost = $1,000,000.
• Total Profit (not including employee costs) = $36,784,000 * 0.40 - $1,000,000 = $13,713,600.

This one individual, by herself, caused a $6.8 million increase in demand, and a $2.7 million increase in profit.

You're paying this person $75,000 a year.

What is the value of this employee to your company?  What is the potential value of this employee to the future of your company?  Are you compensating this person in a fair manner, given her contribution to your profit and loss statement?

In the same department, you have a social media manager.  You're paying this guy $70,000 per year, less than the email manager.  This person is able to quantify the following contribution to the company.

• Facebook Likes increased from 11,439 to 14,903 in the past year.
• Twitter Followers increased from 9,493 to 13,771 in the past year.
• 401 F-Commerce orders and 345 Twitter click-through orders, at $100 AOV (neither program existed in the year prior).
• $74,600 annual demand.
• Profit Flow-Through Rate of 40%.
• Total Profit (not including employee costs) = $74,600 * 0.40 = $29,840.

What is the value of this employee to your company?  What is the potential value of this employee to the future of your company?

You calculate employee value, don't you?

At Nordstrom, I had a scorecard.  Every employee in my department was listed as a row on the scorecard, and an estimate of annual profit contribution was listed in a column on the scorecard, based on tests we conducted and projects each employee worked on.  When I attended a meeting and an Executive questioned the value of an employee, I had an immediate response --- "We're paying Sandy $49,000 a year, and she made improvements to her area that generated $983,000 of incremental profit last year ... she ranks 9th out of 24 employees in the department".

You're probably doing this, right?  You know the actual value each employee generated to the business last year, incremental, above-and-beyond what was done the prior year, correct?

As a boss, you have to have a tool like this in place.

If you are an employee, it is even more important to have a tool like this in place.  It is the only way that you can fight for your paltry 3% salary increase (which sure doesn't align with the profit contribution of the email manager in our example, does it?) ... it is one of the most effective ways to argue for a promotion.

Why not take a hour today, and calculate employee value?  You may be surprised by the employees who are truly contributing to your bottom line!

Little Black Bag

Twitter user Judah Phillips shares this little tidbit from Klout and Little Black Bag.

• Click here for the promotion from Klout.

Use the comments section below to share your thoughts ... do you support the concept of customers and prospects with a bevy of "Digital Friends" being offered lower prices than folks who haven't mined their social media for gold?

Dear Catalog CEOs: Relevant Talent

Dear Catalog CEOs:


Are you in the same place that so many other folks are these days?  In other words, are you struggling to find what one individual recently called "relevant talent"?


The job market places value on specific job responsibilities.  And the job market has a way of moving various job responsibilities between clients and vendors.


For a decade, we placed value on what we thought was important.

• Catalog Circulation:  Outsourced to the co-ops.
• Email Marketing:  Outsourced to a small number of vendors.
• Database:  Outsourced to a small number of vendors.
• Paid Search:  Outsourced to a small number of vendors.

We almost did this unconsciously, didn't we?  

We were able to downsize a once-robust customer acquisition team, because it was so much easier to just call Abacus for 1,205,448 names.  As a result, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

We started with email in-house, then realized that the vendor community could blast our campaigns cheaply and quickly, coupled with opens/clicks/conversion data ... don't need in-house talent to do anything other than coordinate the campaigns now.  So, we shipped that function out, and as a result, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

We sent our database out to pasture, didn't we?  When we shipped this function out to the vendor community, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

Paid Search became the most relevant online comparable to catalog co-ops ... you either pay for clicks, or you pay for access to the mailbox.  When we shipped this function out to the vendor community, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

From 2001 to 2010, this "worked".  We cut back on expenses, and our vendor partners worked their rear ends off to support us.  This was a magical outcome of the "multi-channel" era.

Except for one little problem.

In my time in the industry (1988 - current), talent "developed".  I want to share with you the career path of some of the individuals who became Executives during the past twenty-five years.

• Accountant -> Circulation Manager -> Circulation Director -> Merchant -> EVP Direct Channel -> Owner.
• Customer Acquisition Analyst -> Housefile Circulation Manager -> Customer Research Director -> VP Direct Channel.
• Statistician -> Inventory Manager -> Research Manager -> Research Director -> VP Direct Channel -> EVP Direct Channel.
• Customer Acquisition Analyst -> Customer Acquisition Manager -> Circulation Director -> VP Online Marketing
• Housefile Circulation Analyst -> Housefile Circulation Manager -> Merchandising Director -> General Manager -> President

What did each of these individuals possess?  Well, they obtained skills in job titles that, in the past decade, have been largely outsourced to the vendor community.

And while vendor community skills are very important, they are not the same as the skills you obtain in the hand-to-hand combat of a catalog/online/retail brand.

A decade of this activity resulted in a complete dearth of what is now called "relevant talent".

Repeatedly, folks ask me to help them find an individual with a set of skills that simply doesn't exist anymore.

• "I want an online expert who can also increase the profitability of our catalog marketing program."
• "I want somebody who can integrate email and search and social into a coherent strategy".
• "I want somebody who knows how to run a profit and loss statement."
• "I want an Executive who can chart a course to the future."

These people were plentiful fifteen years ago, because we developed the talent pipeline.

These people barely exist today, because we abandoned the talent pipeline, we outsourced it.

As a result, we have to greatly overpay for relevant talent, or we have to adjust our expectations for the reality we created for ourselves while kick-starting the talent development process.

To date, we've not willing to do either.  Our businesses are suffering as a result.

Thoughts?

Time To Sell: Optimal Investment

We made a series of improvements to the business ... we improved Net Sales, we improved Gross Margin, and we improved Merchandise Productivity.


The business is healthier, as a result.

Now, businesses usually make one of two mistakes, when it comes to customer acquisition:

1. Under Investment, in order to protect the short-term profitability of the business.
2. Over Investment, in order to protect top-line sales.

The business that we are analyzing is over-investing, in fact, it is over-investing badly.

Look at what happens when we cut back on catalog customer acquisition activities by 60%, in this case.

My goodness!

This business, from a profit standpoint, is probably at an optimal level ... generating around $12,000,000 of Earnings Before Taxes a year.  Now, there's a price to pay for this level of profitability, because we end up with fewer new customers, yielding a business that generated only $90,000,000 of annual demand.

Both business scenarios probably have similar value:

• A $106,000,000 business generating maybe $9,500,000 of annual profit.
• A $90,000,000 business generating maybe $12,000,000 of annual profit.

But here's what matters, folks.

What matters is that a business, even a failing business, can be improved.  And if the performance of the business can be improved, then the value of the business can be improved.

2012 is a good time to start thinking about an exit, especially if your business caters to Judy.  When a business owns a customer file with 50% or greater penetration among Judy's generation, then the long-term prospects of the business can be questioned.  This gives the business owner or CEO an opportunity, a five year window, to significantly improve the productivity of the business, in preparation for an exit.

If this style of analysis is of interest to you, please contact me for your own, customized project --- click here.

Time To Sell: Merchandise Productivity

Yesterday, we invested a little bit of energy on fundamentals.  Without a dramatic improvement in fundamentals, the value of the business essentially tripled.

Now, the business is more profitable, but it still isn't terribly healthy.  We haven't addressed top-line demand increases, yet.

Almost nobody talks about merchandise productivity.

And, yet, merchandise productivity is more important than anything else.

Merchandise productivity can be increased by having great product (easier said than done).

Merchandise productivity can be increased by improving the performance of landing pages, by improving the performance of the home page, by merchandising email campaigns better, by having a raw desire to assort a catalog in the best possible way.

Merchandise productivity increases of 10% are achievable.  It just takes a team of business leaders with an unbridled passion for the business, a discipline for selling, to drive increases.

I know, you won't find anybody re-tweeting an article about merchandise productivity.

But look at what happens to the profit and loss statement when there is a 10% increase in merchandise productivity.

Are you kidding me?

This business is bordering on being healthy.  Suddenly, we have a $106,000,000 business (demand) that is generating $9,500,000 profit.  A business that might have been valued at $10,000,000 is suddenly a business that might fetch in the neighborhood of $50,000,000.

If you're an owner, what number would you prefer ... $10,000,000 ... or $50,000,000?

You accomplished this by improving the Net Sales percentage by three measly points, by improving the Gross Margin percentage by three measly points, and by improving catalog and website productivity by ten percent (now that's not easy, but it is very achievable).

Mobile Accounts For 50% Of Daily Sales

By now, you've had the opportunity to read this ditty about flash sales websites generating up to 30% to 50% of daily sales via mobile (click here please).


Now, I want for you to look this individual in the eyes ... go ahead, look her in the eyes:

This, of course, is Judy ... she's 59 years old.  She's not driven by the urgency of a flash sales site.  She lives in an area where she can't even get 4G coverage on her phone.  She demands a keyboard-based experience.


If this is your customer, then mobile is a niche, at best.  You won't achieve 50% mobile sales.








Take a look at this young lady:

This is Jasmine, right?  She's 27 years old.  She can't afford expensive merchandise.  She is motivated by urgency.  She has a 4G phone, and that's a good thing, because in an urban/suburban environment, she can make good use of the device.  


Heck, Jasmine would prefer to keep her phone if given the choice between her phone and her car!


Now take a peek at Jennifer:

Jennifer, of course, is 43 years old.  Her experience is likely to start with Google.


In other words, Jennifer hunts for the best deal available for her family ... she goes out and searches for the best product and the best price.  She doesn't want a curated experience, and she doesn't want "the Man" forcing her to do something she doesn't want to do.


She's "the decider".






We're marketers, right?


So why don't we segment our audiences?  Isn't this Marketing 101?


These days, everything we read is based on an over-generalization ... we find a story to match our worldview (mobile is HOT), then we suggest that everybody can achieve greatness if they just have a world-class app.


If your customer is 59 years old (Judy), it doesn't matter how great your app is ... you're not going to break through.  This doesn't mean that mobile isn't important, it just means you're not going to generate 50% of your sales via mobile this September.


If your customer is 27 years old (Jasmine), then mobile+social is a fundamental part of your brand, right?  Maybe generating 50% of sales via mobile means that you are not performing to expectations!!


Read these articles carefully.  Know your customer.  Then craft an appropriate strategy!

Time To Sell: Fundamentals

Take a look at my five year forecast for this business (click here to contact me for your own five year forecast).


This is a business that has stalled.  It's not terribly profitable, is it?


Last year, this business generated $93 million in demand, $79 million in net sales, and a paltry $2.3 million in earnings before taxes.


If you were going to sell this business today, what could you fetch for it?  Ten million?  Less?


The forecast isn't very optimistic, is it?  Demand is stalled, customer counts are flat, and profit is being eroded by fixed costs that are increasing at an inflationary rate.


Now, I know this is boring to talk about, but fundamentals are really, really important.


Net Sales represent the percentage of what a customer asks to purchase that the customer actually keeps.  Say you sell 100 units.  You can only fill 95 of them because five sizes aren't available.  And of the 95 that remain, 10 are returned for a refund.  You net out at 85 units sold.  Your Net Sales rate, therefore, is 85/100 = 85%.


It turns out that if you are able to make a small difference on the Net Sales line, you make a big difference on the Earnings Before Taxes line.  Take a peek at what happens when the Net Sales rate changes, from 85% to 88%.

Well, the profit and loss statement looks better, doesn't it?  That tiny three point increase in the Net Sales rate resulted in more than a million dollars of additional profit, per year, for each of the next five years.  If a business like this sells at five times earnings (and it may sell for much less, but please bear with me), then, you've just improved the value of the business from $10,000,000 to $15,000,000 ... because you've improved the fundamentals of the business.


Gross Margin represents what you get to keep, after accounting for Cost of Goods Sold.  If you sell an item for $100, and you paid $45 for that item, then you get to keep $55 ... your Gross Margin is $55/$100 = 55%.


Gross Margin is frequently influenced by the ability of a business to accurately forecast demand.  When customer demand is weak, liquidation of existing items is required.  Liquidation of merchandise, if you didn't already know, kills Gross Margin dollars.


It's not uncommon for a business, within just a year of time, to improve Gross Margin by three points simply by focusing on inventory management.  Take a look at what happens when we combine a Net Sales improvement with a Gross Margin improvement:

Oh boy!  A business that was generating about $2,000,000 of annual profit is not, through a strong focus on fundamentals, generating about $6,000,000 profit.  At five times earnings (and this business might now fetch more, given that the health is starting to improve), this business might be worth $30,000,000.


In other words, the business may be worth three times as much (maybe more) by simply focusing on the fundamentals ... accurately forecasting demand, filling orders, and eliminating returns.


I know, this isn't sexy stuff.  It's terribly boring.  You won't get re-tweeted on Twitter talking about the fundamentals of a business.  And yet, management of the fundamentals makes all the difference, doesn't it?


Tomorrow, we're going to talk about merchandise productivity.  Hint --- merchandise productivity matters!