A Model describing the role of different types of customers in the ecommerce world. how do we classify our customers? how do we look at the revenues they bring in? What should be the focus of a ecommerce company at different stage of its growth?

1. - An ecommerce Perspective

2.  User: Someone who uses
(browses, interacts, contributes) your
website.
 Customer: Someone who buys something
from your website (non ad-supported model).

3.  Era: A period of time when there is a shift in
the user base.
e.g
Early stage Product:
10% growth in unique users.
Media Stage Product:
30% growth in unique users.
Mature Product:
10% growth in unique users.
The Duration of an Era can be (is typically), different from its previous Era.

4. Customer
1 2 3 4
First
Repeat Regular
User Time
Buyer Buyer
Buyer

5.  There will be users who did not buy anything: (N)
 There will be users who bought only once: (O)
 There will be users who bought 4 – 6 times: (R)
 There will be users who bought >6 times: (C)
N >> O >> R >> C

6. … and Ask these questions every era.
 Is the conversion rate from User -> Customer
getting better?
 Was it a seasonal increase/ decrease ? (you
will know from the items purchased)
 What did I do right/ wrong? (Web Analytics)

7. Assumptions
 Era definition: 10% growth in Unique users.
 Repeat buyer as a % of one-time buyer: 5%
 Regular buyer as a % of Repeat buyer: 10%
 Avg Revenue from
◦ One – time buyer: “x”
◦ Repeat buyer: “4x”
◦ Regular buyer: “10x”

8. Revenue Growth during 22 successive “Era”s:
One time and repeat users grew 7.5 times.
Regular users grew 71 times*
Total revenues grew 10 times
Rev from Regular
Rev from Repeat
Rev from One Time
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
* Regular users get added over previous eras

9. Revenue Composition during 22 successive “Era”s:
ERA 1: Revenues from one-time buyer/ Total Revenues = 0.8
…
ERA 22: Revenues from one-time buyer/ Total Revenues = 0.6
Even though Regular customers have grown 71 times, they account only for 29% of revenues
100%
90%
80%
70%
60%
Rev from Regular
50%
Rev from Repeat
40%
Rev from One Time
30%
20%
10%
0%
1 3 5 7 9 11 13 15 17 19 21

10.  Era ∞ :
Revenues from one –time buyer / Total Revenues = 57%
Revenues from regular buyer/ total revenues = 31%
… and this is very less dependent on the Growth %
( If Era= 20% user growth, instead of 10%...
Era ∞:
revenues from one –time buyer / Total revenues = 67%
revenues from regular buyer / Total revenues = 20%. )

11.  No matter the growth rate of the website, first-time buyers will always be the bulk
composition of the revenue.
 The normal assumption of “Costs for First time buyer is high, Costs for regular
buyers is low” is not valid. To keep a regular buyer as a regular buyer, requires a
LOT of investment (product upgrades, category upgrades, service upgrades)
 Companies must continuously focus on first time buyers always! No breaks, no
time-outs… the growth of first-time buyers must not slow down.
 Costs spent on new customers and regular customers must be similar to the
revenues they bring in. i.e if
Revenue from New customers / Revenue from Regular customers = 60/30
Then Marketing investment / Product-service investment must be 60/30.