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.

FORECASTING SEASON!

We're approaching mid-September, which means it is FORECASTING SEASON!

During FORECASTING SEASON, there are easy fixes, and there are hard fixes. Somebody will run a forecast and get this as a result.

This business is contracting. The business needs to be fixed. Somewhere, somebody in Finance looks like this:

This brings us back to the topic of easy fixes and hard fixes. People avoid hard fixes. People embrace easy fixes. Easy fixes happen in Marketing. "What if you increased your paid search budget by 20% per year, does the business grow?"

Here you see tradeoffs ... you give up more than a million dollars of profit in the short-term, then the business improves in the long-term.

And ... the core issue isn't solved here ... spending 20% more on paid search just mitigates the sales decline somewhat, but it is still there.

During FORECASTING SEASON it's our job to get these scenarios out there. Flood the airwaves with Marketing Budget Experiments designed to help our Leaders understand (well ahead of time) what various "solutions" actually solve.

P.S.:  There is a difference between most "brands" and those who embrace FORECASTING SEASON. Those who embrace it believe in something. They're working toward something. Maybe their approach is full of red-tape, but they are working toward something. Why do I bring this up? Well, last night I posted something on LinkedIn asking my readers what is their overriding marketing principle that they do not budge from (mine would be the importance of Customer Acquisition). Here's a link to what I wrote. As of press time, the article has been viewed 411 times and has ZERO likes and ZERO comments. If I write something like "Macy's Bizarre Omnichannel Strategy" I'll have 15-25 likes and a half-dozen comments with enough thought leadership to fill a conference agenda ... and it is meaningless nonsense, all of it. Ask the reader to share what they stand for, and not a single reader can do that? My goodness. Those of you who embrace FORECASTING SEASON stand for something ... you are trying to ward off trouble in the future by addressing trouble today. That matters.

What Will It Take To Grow?

We enter the numbers from last year:

From there, we forecast next year - what do demand/sales look like, what do twelve-moth buyers look like, with varying rebuy rates and varying new/reactivated customer counts?

You started the year with 100,000 twelve-month buyers ... the intersection of a 30% rebuy rate and 60,000 new/reactivated buyers takes you to 90,000 twelve-month buyers.

Oh oh.

What gets you to 100,000 twelve-month buyers?

• At a flat rebuy rate, you need 72,000 new/reactivated buyers ... +20%. Good luck!
• With a 34.5% rebuy rate (+15% ... good luck!), you need 66,000 new/reactivated buyers ... +10%.

You either need a 20% increase in new/reactivated buyers, or the combination of a 15% increase in rebuy rates with a 10% increase in new/reactivated buyers.

What will it take to grow?

Heck, it will take a lot just to keep the file static.

It's FORECASTING SEASON ... you are executing against your November/December plan, but somewhere behind the scenes somebody in Marketing and/or Finance and/or Inventory is deep into FORECASTING SEASON for 2024. Somebody has run this scenario (above), and somebody has already told your Executive Team what is coming ... in this case, your Executive Team is not looking forward to 2024. They are planning ahead, as is their job, to combat what looks to be a problematic situation.

They're Telling You To Acquire New Customers In November And December

Yes they are.

A CEO once told me to "catch the fish while they are biting".

What happens if all you catch are guppies?

I've been analyzing these trends since 1990. It isn't always best to catch the fish while they are biting. Sometimes you need to hold out for bigger fish. Here is an example of what four-year future profit looks like for customers acquired by month ... your mileage will vary.

• $22.94 in January.
• $24.55 in February.
• $27.70 in March.
• $27.47 in April.
• $27.03 in May.
• $24.66 in June.
• $22.81 in July.
• $23.08 in August.
• $25.12 in September.
• $23.37 in October.
• $19.44 in November.
• $15.88 in December.

This happens frequently - it's easy to acquire a customer in December ... but the customer doesn't have value. You acquire 30% of your new customers for the year after Thanksgiving, they pay you back poorly, then you wonder why your rebuy rates are so tepid?

It's important to have a holistic customer acquisition program that generates ample new customers every month of the year.

Then The CEO Smashed His Fist On The Table

Pre-COVID, I'm visiting a client. Customers have a 30%ish annual repurchase rate, and the rate hasn't changed in a decade. In fact, any modest change in the metric has been negative.

I present my findings, stressing the dire need for new customers. Every few years the client had a good customer acquisition year, especially when the marketing leader focused on new customers. It wasn't that the brand couldn't acquire new customers at acceptable rates - it was that the brand chose to not do it every-other-year, then had to go back to the drawing board when the subsequent year stunk after marketing budget cuts.

After presenting my findings, the CEO smashed his fist on the table. "WE ARE GOING TO FIGURE OUT HOW TO CREATE LOYAL BUYERS. WE ARE GOING TO SQUEEZE MORE JUICE OUT OF THE LEMON!"

Let's just say that, after years of visits, I wasn't invited back again.

The challenge we have is simple.

• We sell products that customers don't frequently need. We aren't Target.
• The products we sell dictate our rebuy rates.
• Rebuy rates can be marginally moved by marketing efforts, but at a cost.
• If customers don't need your products often, any increases in frequency are marginal.
• This means you need a constant flow of low-cost new customers.

When I worked at Nordstrom, our customers bought six times per year. A 10% increase in purchase frequency resulted in an additional 0.6 purchases per year per customer.

For most of my clients, customers purchase 1.5 times per year. A 10% increase in purchase frequency results in an additional 0.15 purchases per year per customer. You'd barely notice the difference.

This is why you need a steady diet of new customers!

The Numbers Haven't Been Good in a Long Time

Based on all the data I get to see, here's what customer acquisition trends look like over the past decade, using 2014 as a base.

Among my catalog clients, there was a long-term trend ... a negative trend, that was disrupted by the COVID-bump. Now we are working our way back into the trend. For a few years, the issues was masked (see what I did there) by the pandemic. Reality is hitting in 2023, and is going to sting in 2024 unless something changes.

The e-commerce trend (in red) is equally disturbing, just in a different way. Unfettered growth is ending. Like with catalogers, the COVID-bump masked the fact that customer acquisition was getting harder and harder.

There are many people who tell you daily customer acquisition trends out on the socials. It's really hard to see what history tells us and then project forward as a consequence. But follow those red bars and project them out a few years ... what does the trend tell you?

Back in 2016 I had to beg readers to pay attention to customer acquisition. I traveled the country, speaking at conferences begging attendees to pay attention to customer acquisition. The e-commerce audience could have laughed off the plea in 2016 ... it's harder to laugh it off today.

The catalog portion of my readership is facing a reckoning. I know this audience doesn't want to hear that, and there are plenty of vendor leaders who will tell you otherwise. There's a reason they are telling you otherwise. What is that reason?

2024. Time to find new ways to find new customers. Go!

Behind The Curve

Tee hee!

Think of the difference a day makes.

On Friday, September 1 Deion Sanders was the confident/arrogant new coach of a college football team that went 1-11 last year. He brought in eighty-six (86) new players ... so much for the concept of a student-athlete ... he was a day away from game one. He had, let's say, some "doubters".

After his son (the quarterback) threw for more than 500 yards in a 45-42 win at TCU, Sanders held his first post-game press conference as Colorado head coach. It was something to behold (click here). 

If you've ever been doubted in your life, you'd like to to do this ... of course, it isn't a good look for most of us to do this.

When you are behind the curve, you doubt. Have you ever read the nasty articles about Amazon from the catalog community in the old DM News, circa 2002? As Deion would say, "do you believe now?"

Once reality hits, you want to jump on board (hence, the tweet above).

There's a customer acquisition reckoning coming. I can yell at you all day long about it, but 2024 is the year when, if you are behind the curve on this topic, you pay a price. Forecast your business accurately for 2024, and then do something about it, before business does something to you as a result of being behind the curve.

P.S.: Speaking of behind the curve ... from 2007: