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Wednesday, March 1, 2017

February 2017 Ends On A Fantastic Note And Our Progress To Date

We have been in business now on a full time basis since July 2015, which is 20 full months. We ended February 2017 with just over $3,100 in sales, continuing a strong trend that started in January. I thought it would be appropriate to review some statistics since July 2015 to see how the business is progressing, and to illustrate the incremental nature of the process of building a business.

Too many people will judge the viability of a business far too early into the life cycle of a business and will fail to appreciate that it takes time to:

  • Reach potential customers.
  • Convince potential customers to become actual customers.
  • Develop the customer relationships to the point where repeat business is a certainty.
  • Develop and perfect your value proposition.
  • Deploy your inventory.
This last point is unique to online businesses like ours. In a bricks and mortar business, a store can lay its inventory out in its stores in a matter of days or weeks. Customers usually do all the work of browsing and asking questions about items they are interested in. However, there is no way for customers to rummage online. Every single SKU must be photographed, described and priced, so that the customers can browse and purchase conveniently. In the case of businesses with a relatively narrow range of products, this isn't too bad, but in our business, every single stamp is its own SKU. We currently have almost 6.500 SKU's in our E-bay store, with tens of thousands more to list. So it is a long process to get the business to the point where our full range of stamps is listed, and on display for our customers. 

Thus our startup period really does not end until we have reached this point. Our goal in the interim is to become self-sustaining and to develop and nurture enough customer relationships successfully that we can experience significant increases in sales once we do have everything listed. The flip side to the labour-intensive nature of listing stock is that it becomes less so over time. Less so because we are able lo make use of old listings as templates to create new listings, whereas initially, we are doing everything from scratch. 

So in evaluating the viability and progress of the business, it is important to look at trends in key indicators. There are several of these, but the three that I have had time to calculate today, and I want to share are:

  • Total sales for the 20 months, expressed as an average, with the number of months in the first 10 months that are below that average, compared to the number of months in the most recent 10 months that are below the average. If this number falls significantly, then it means that the moving average monthly sales is going up, which is a good sign. 
  • The total number of new customer relationships initiated since we began recording them in August 2015. Obviously, most of these will not become repeat customers, but many will. In addition, we can see from the date on which a customer first bought from us that there are a significant number of customers who come back to us after an absence of several months. Again, it is useful to take an average over the 19 months and to look at how many months in the first 9 months were below this average, as compared to how many months in the most recent 10 months were below the average. Again, if this number falls, then it indicates that the number of new customers is increasing over time. This is very important as new customers are essential to maintain sales, when the regular customers are not buying, and also to create opportunities to develop new regulars. 
  • Volume of items sold. Again, similar stats will give us some insight into the stability of the sales figures. 

Total Sales

Total sales for the 20 months ended February 2017 was $61,524. That averages to $3,076 per month. Looking at the individual months for the first 10 months of this period and the last 10 months reveals the following observations:

First 10 Months - July 2015 to April 2016:

  • Sales for 6 out of the 10 months were below the average.
  • For those months that were above the average, there was usually at least one or two major sales over $700 that was skewing the total.
  • The standard deviation of the sales during this period was quite high: the totals for each month are either way below the average, or they are way higher. There is only 1 month out of the first 10 months, March 2016, where it was close to the average at $3,388.  
  • Sales benefited from the 30% premium on the U.S dollar as all our prices were in US$.
Second 10 Months - May 2016 to February 2017:

  • Sales were only below the average for 3 of the 10 months. 
  • There was only one of the months above the average, November 2016, where the total sales was inflated by the inclusion of one major sale. In this month, the total of $4,145 included a $1,500 sale, which still left $2,645 - close to the monthly average. 
  • The standard deviation of sales during this period was much, much lower. 7 of the 10 months are within 15% of the monthly average, which keeps going up.
  • During this period, in June 2016, E-bay discontinued support for US$ listings, which meant that a stamp we had sold for $1 US in April 2016 was now sold for $1 CDN. So our increase in sales is actually more significant because the earlier totals were all inflated by 30% which we were no longer getting after June 2016. What this also did though, was make our listings more attractive to U.S. buyers, which has resulted in significant growth in sales to the customers in the US and other countries. 
So in general, not only have sales exhibited a steady upward trend, but the quality of the sales is better in the sense that it is coming from a larger volume as opposed to just one or two one-off, high sales. The monthly sales totals exhibit far more stability now, than they did in the first 10 months. 

Number of New Customers

The total number of new customer relationships that have been initiated, since we have started recording them in August 2015 is 775, which works out to almost 39 per month on average. Looking at the individual months for the first 10 months of this period and the last 10 months reveals the following observations:

First 10 Months - July 2015 to April 2016:

  • In 7 of the first 9 months, the number of new customers was below the average.
  • There was a high standard deviation, with only one month being close to the average. 
Second 10 Months - May 2016 to February 2017:

  • In only 2 of the last 10 months was the number of new customers below the average, and in one of these, it was only short of the average by 1. In the other case it was 10 customers lower than the average. 
  • Most of the months are well over the average with 43-45 being common up to November 2016, and 60-65 being more common in the last  4 months since November 2016. 
So the number of new customers buying from us is growing very, very significantly every month, and for the last two months it is fully double what it was for most of the first 9 months that we were tracking it from August 2015 to April 2016. What is behind this growth? Two things:

  • Our number of listings has grown steadily and by increasing amounts each month, so there is more material out there to attract buyer's interest.
  • Our blog is now receiving upwards of 300 visits per day, whereas it was only getting around 100 per day as recently as November 2016, and in the first 10 months from July 2015 to April 2016 we were lucky to get 30-50 visits per day. I don't know how many of these visitors have become customers, but I do know that there are some, because I have had customers who later contacted me through the blog to request that I sign them up for the store newsletter. I believe that this is actually where a significant amount of the growth is coming from. 
So the number of new customers is increasing, and the rate at which it is increasing, is also increasing. As I have said before in other posts, it can take 6 months to fully develop a new customer to a point where they are spending at their normal comfort level. So a significant increase in new customers now, will play a significant role in increasing sales over the next 6 months or more. 

Volume of Stamps Sold

During the 20 months, the number of items sold is 4,090. This averages out to nearly 205 per month. Looking at the individual months for the first 10 months of this period and the last 10 months reveals the following observations:

First 10 Months - July 2015 to April 2016:
  • 8 of the first 10 months had total volume of less than the average, with most of the months being significantly less. The actual 10 month average for this period is 132 items.
Second 10 Months - May 2016 to February 2017:

  • In only 1 month, was the volume lower than the average at 169 items. Despite this, the total sales was $3,596. This is because a large range of better sales compensated for the lower volume. 
  • For most of the last 10 months, the monthly volume has stayed between 220-250 items. In 2017, however, it has averaged over 400 items each month!
This explains why the quality of the sales totals is better in the last 10 months: because sales are coming from a larger volume of items. New customers usually don't spend much more than $5 or $10 the first time they buy. There are plenty of items in our store that are 99c, so what often happens is that the volume stats reflect a number of new customers that are buying 5-10 99c items, while the bulk of the monthly sales growth is now coming from the repeat customers who are regularly buying the $20-$50 items and spending $50-$200 per visit. So our expectation is that these regular customers will continue buying, but then these new customers will gradually develop into regular customers who spend that much. 

Overall Conclusion

My overall conclusion is that the business is very healthy, despite the modest level of overall sales. The growth trend indicates that the business still has a long way to go before its growth is expected to slow down. It is only at that point, where the number of new customers each month begins to decline, or where the sales growth plateaus, that we will know what the true limits are on the potential of the business. 

At the moment, we are selling enough to make a living, and we have enough inventory that has been bought and paid for, that we do not have to worry about replenishment. That being said, we have been able to replenish in areas where we have experienced the most sales, even now. So I am very optimistic that I will be able to reach our ultimate monthly sales target of $20,000 per month, within the next 2-3 years.