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Monday, August 22, 2016

A Review of Results From May to August 2016

We have been going full bore for the last two months trying to get material listed, inventory counted, financial statements prepared and e-bay listings converted to comply with E-bay's regulations. Consequently, we have not had a lot of time to step back and look at our results from 40,000 feet so to speak. So I thought that today, I would take an opportunity to look at how we have been doing for the past few months, now that we have compiled some good quality statistics.

In addition to tracking sales on a daily basis, we have also tracked the following statistics on a monthly basis starting in May 2016:

  • Percentage of total sales coming from repeat customers.
  • Percentage of total customers who are repeat customers.
  • Total number of new customers transacting business with us that month.
  • The number of unique items sold.
  • The average sales dollars per item sold.
The significance of these statistics are as follows:

In order to grow sustainably, every business needs to have a significant portion of its revenue coming from repeat business. If all of the revenue were coming only from new customers then it can indicate that we are not doing a good job of servicing our customers, since they are not coming back, or it can mean that there is not sufficiently strong demand for our stamps. In any event, if we only sell to new customers, then our business will eventually stagnate and decline. Repeat customers help keep the sales stable when the general level of sales activity is down. But at the same time, if key repeat customers are away or on vacation, then we can expect sales for that month to be lower. In addition, it takes time for a new customer to become a repeat customer. Generally, it is unusual for a new customer to buy again before receiving their first item that they paid for before. It does happen occasionally, but it is very rare. Assuming that it takes at least 1 week for the customer to receive their item, and another week to experience the desire to shop again, there is a minimum of a 2 weeks to a month that must pass before a new customer will come back. In addition, new customers generally spend far, far less than established repeat customers who have confidence in our product and our level of service. Generally, most new customers spend less than $5 for their first purchase, and it may take 2-3 repeat purchases before they spend significantly more. 

All of this means that the full impact of developing a repeat customer on the top line will not be fully felt for anywhere from 2-3 months. So much of the repeat business that we are getting in August, will be customers that we first serviced in May or possibly June. The customers that we have serviced in July and August have yet to come back and spend to their full potential. So, one important indicator of future growth is how many new customers the business is attracting each month. 

So although gross sales levels are important and we should be concerned if we see a declining trend, what is much more critical to the long term health of the business is to see growth in the amount of repeat business, the amount of new customers and the amount spent by repeat customers. So with that, lets look at some actual results:

Percentage of Total Sales Coming From Repeat Business

April 24 - May 23, 2016: 47%
May 24 - June 23, 2016: 75%
June 24 - July 23, 2016: 70%
July 24 - August 23, 2016: 69%

Here we can see that there was significant growth in the percentage of total sales coming from repeat customers in June. We can also see that that percentage has levelled off and is in the 69-75% range. In terms of the number of customers, we have serviced 444 unique customers since July 2015 when we started keeping records. In any given month, the total number of separate, repeat customers coming back to us is between 29-33, which translates into roughly 7% of our customer base. So if we have 30 new customers each month, the statistics tell us that approximately 2 of these will become repeat buyers. 

Percentage of Total Customers Who Are Repeat Buyers

April 24 - May 23, 2016: 37%
May 24 - June 23, 2016: 49%
June 24 - July 23, 2016: 58%
July 24 - August 23, 2016: 49%

This statistic is telling us that a larger and larger percentage of our customers are repeat customers. The percentage appears to be leveling off, but given the lead time on the development of customer relationships, this may be misleading and we may see this percentage continue to grow. This percentage is significantly higher than the 7% overall figure that I gave above, which likely means that we are now doing a better job now that we are more established, in retaining new customers than we were back in August or September 2015. Given that gross sales have been lower for July and August this year, seeing these percentages is a good sign as it means that the decline is most likely only temporary and will disappear as we list more material. 

Total Number of New Customers

April 24 - May 23, 2016: 49
May 24 - June 23, 2016: 34
June 24 - July 23, 2016: 23
July 24 - August 23, 2016: 34

The number of new customers does appear to be dropping, but these numbers do not tell the whole story. Since July 2015, the number of new customers has been fewer than 30 in four of the last 12 months, and has been between 30-34 in three of those months. So the number of new customers in each of the past four months has been higher than it was in six of the other eight months in question. So while there is a fair amount of fluctuation in the number of new customers from month to month, overall the total number is indeed growing. One factor that may explain some of the monthly declines may be the amount of inexpensive entry level material being listed. We listed very little material in July and much of what has been listed in August has been priced higher than most new customers are comfortable paying. However, listing of less expensive modern stamps has resumed, so we should see an increase again in the number of new buyers, who will find a wide range of low priced stamps to entice them. 

Number of Unique Items Sold

April 24 - May 23, 2016: 169
May 24 - June 23, 2016: 339
June 24 - July 23, 2016: 189
July 24 - August 23, 2016: 192

The average number of items sold each month has been steadily rising. When we started full time in July 2015 it was 80-85 items a month and by April it had grown to an average of 144 items a month. As you can see here, it is continuing to grow steadily, with June being an extremely good month that saw some customers buying as many as 30 items each. So not only are the number of new customers and repeat customers growing, but they are spending more each month on a larger range of material. 

Average Sales Dollars Per Item Sold

April 24 - May 23, 2016: $18.61
May 24 - June 23, 2016: $11.87
June 24 - July 23, 2016: $8.34
July 24 - August 23, 2016: $13.14

There is a fair amount of variation in the average sale price, as this statistic is very sensitive to the number of items sold. However, what it does show is that we are able to sell a larger and larger amount of items in the lower price ranges (i.e. below $20). Historically, many dealers have found this to be the most difficult material to sell. However, for us it would seem to be the easiest. It is also the most profitable. 

So what these statistics are telling us is that the business is performing very well in terms of selling a larger and larger number of items each month, and growing its base of new and established customers each month. 

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