A holiday shopper is not your average customer. The rest of the year, you might be selling high-end kitchen supplies to self-taught chefs. Come November, your new customer could be a take-out addict – hard pressed to describe the difference between a braise and brine. Making the assumption that a holiday shopper will become a year-round customer sets ecommerce retailers up to overspend, underspend, or spend in the wrong places to acquire these shoppers. Before jumping in to capturing new holiday shoppers, make sure you first understand just what a holiday shopper is worth.
According to the NRF 36% of holiday shoppers decide where to shop based on discounts and sales. A separate study by Deloitte found that 71% of holiday shoppers expect free shipping and 47% expect free returns. Couple this with the fact that that advertising becomes more expensive and inboxes become more crowded, you are looking at substantially higher acquisition costs around the holidays.
Here’s the tricky part. While you want to avoid over-spending on expensive, one-time customers, you also want to spend enough to acquire and take care of good customers. You know, the kind who spend big bucks in your store. During the year you likely use (or should use!) Customer Lifetime Value (CLV) to guide how much you can spend on acquisition. Again, while this is useful in guiding your marketing efforts in March, it’s not so useful in November – remember, different customers. For the holidays, we recommend calculating CLV for holiday shoppers only. Here’s how you can figure out just how much a holiday shopper is really worth:
Step 1: Segment your holiday shoppers
You need to tease out your holiday shopper from your year-round customers. If you have a “This is a gift” checkbox then you’re in luck. Just look for first-time purchasers who bought during the months of November and December. Why November and December? Because these are the “official” holiday shopper months according to the National Retail Federation. If it makes sense for your business to expand these parameters – go for it. If you don’t have this box, you can at least look for first-time purchases. It won’t be quite as accurate, but you’ll get close.
Step 2: Get your numbers in order
- Average holiday order value: Using the segment you defined above, look at the average order value for this group.
- Repeat purchase rate: Now look at the number of holiday shoppers who have purchased from you over multiple holiday seasons, but not during the rest of the year. If they purchased at another time throughout the year you should be thinking of them as part of your larger customer base.
Acquisition costs: For this, either use last year’s data or your budget estimates for this year. If you want to get more granular you can break out acquisition costs by channel to see which channels are bringing in the highest value customers.
- Expenses: In addition to your gross margin you’ll also want to think about other expenses specifically related to the holidays. Are you paying for shipping costs? Additional promotions? Gift wrapping? Fulfillment services? Additional employees? All of these should be considered as a cost associated with the holiday shopper.
If you’ve been in business for several years – you should have some data showing repeat holiday shoppers. Otherwise, you may need to rely on some grounded estimates. Assuming you have data for at least two years, you can find first time purchasers from year 1 who purchased again in year 2.
Step 3: Calculate
You now have the data points you need to calculate the Customer Lifetime Value of your holiday shoppers. We built a simple CLV calculator that you can use to figure out the CLV of your holiday shopper. Just make a copy and add your own numbers.
To gain granular insights on what to spend on acquiring holiday shoppers, you’ll need to be able to combine web traffic data with the data in your order processing system. This can be tough, and often involves lots of spreadsheets, data, exports, and SQL queries. Or you could just sign up for a 14 day free trial of RJMetrics, pull this data into our warehouse and run some CLV analysis of your own – your call.