Benefits of Calculating Revenue per Customer

Sep 22, 2007 5:19 AM  By

Revenue per customer is always a valuable metric, but it can be particularly helpful when creating a mail plan for “roving” holidays. These are holidays that fall on different dates each year, such as Easter and Thanksgiving.

Easter is probably the most volatile date because it is based upon the ecclesiastic full moon – the first full moon after the vernal equinox. Easter can range from March 22 through April 25, and when it falls early, mailers not only have a shorter selling cycle, but Easter catalog drops can interfere with Valentine’s Day sales. How can calculating revenue per customer help?

This benchmark isolates total revenue divided by unique number of customers. Monitoring revenue per customer for each segment reveals the sales threshold tolerance, a tool to evaluate how much money customers generally spend by time period (you define the time period as seasonally, annually or by each effort.) If segment A represents 15,000 buyers who generated $503,500 for the Valentine season in ’07, the revenue per customer is $33.50.

One way to use the data point is to cross-reference it as you develop circulation plans. If you’ve outlined two drops for Valentine 2008 and Segment A Drop 1 is planned at 20% response rate with a $74 average order value, and Drop 2 is planned at 25% response rate with a $78 AOV, the season is planned at $617,400. If Segment A is expected to be 18,000 next year, then $617,400/18,000 yields revenue per customer of $34.30. The cross reference sets a reasonableness tolerance.

What still needs to be added-back are the other multichannel dollars. To do so, you’d outline the e-mail campaigns, the response rate, and add the revenue total back to Segment A. If, accidentally a typo occurred in the plans or if plans are too aggressive based on promotions or file size, the revenue per customer would be noticeably different.

Right now, the revenue per customer increase is 1% and the file size grew about 1%–that’s reasonable. If the revenue per customer increase was 7%, you’d want to double-check formulas and assumptions. It might be fine, but it’s certainly worth a careful review.

Gina Valentino is the owner of Hemisphere Marketing, a catalog consultancy based in Kansas City, MO.