Some customer database math -
Almost all businesses fall into the Pareto Principle - optimistically 20% of your customers do 80% of your business.  Applying that math to your ecommerce in order volume will yield you interesting math to help you estimate your yearly sales. So let’s apply this to a database number.
If you have 500 ACTIVE members in your mailing list you can expect a maximum of 100 members ordering in a year. Divide that by the months in a year and you will get approximately 8 orders per month. The average order is 3 bottles. So multiply your SRP times 3 time 8 and you will arrive at your estimated gross income on the web per month. Please consider that this is IF YOU HAVE AN ACTIVE and VALID email list of 500. In general we find that customer databases have approximately 35% of the list inactive. Using that math against a mailing list of 500 (not active) - you find that you have a potential of 325 customer and only 20% of those will translate into orders in a year. That equates to 65 orders per year or approximately 5 orders per month.
My net message is that to run a successful direct business (ecom and phone and club) you need to do a lot of data hygiene. Moreover, you need to really grow your list to continue to press your numbers higher. Even more meaningful is that the 20% of orders you receive you need to really reward and engage with that limited customer set and find ways to increase customer satisfaction and order size. Direct sales are a game of numbers and your metrics will drive your business if you stay rooted in the numbers.  If you have a weak customer database, your results will be significantly less. As my first mentor always says, “math never lies.”
February 3rd, 2008 at 2:21 am
Interesting math Paul.. thanks. My 64 $$$ question is: What, exactly, is the difference between an active and an inactive data base member?
Thanks
February 4th, 2008 at 1:31 pm
Zabie - that is a great question - there are two ways that you measure inactive:
The first is the last time the people interacted with your company and how they interacted. Just because someone joined your guest book does not mean they are a viable potential customer. Moreover, if they signed the guest book three years ago, your ability to re-engage them is severely hindered by the time since they first became interested. “Recency” is one of the most common and important factors in direct marketing.
The second is data integrity. First, you need as much good information as you can get. Just an email or a name is not enough. People often mistake just having a list of emails as a “viable” database. Moreover, if the “recency” is bad, there are more issues. We all know how often we change emails (like socks) or how we list email addresses that we’ve since abandoned and barely check (due to lack of interest, moving, spam, etc). Data Hygiene helps keep data base lists clean and active and should be a regular part of your direct strategy. Use incentives or programs to keep customers keeping you up to date on their new emails, addresses, etc.
I hope this helps but by quickly looking at these two factors, you will be able to determine with a rough glance, how good your mailing list is. Aggressively build and CLEAN a good database of engaged customers and communicate with them regularly and you will yield much greater results via your direct initiative.
Inertia - Powering the Wine Revolution
—Paul Mabray - CEO