The Bazaarvoice Social Commerce Blog » Case Studies

Why Waiting Hurts – Net Present Value of Reviews

Michael Osborne — Wed, 21 Jan 2009 15:31:33 +0000

Net Present Value (NPV) calculations are common in financial circles, but something I discuss with prospects all the time is how investments on their sites and in their customer communities can also follow this concept. The longer you wait, the more you'll miss out on. Let's take a look at the time value of reviews…

Assume a few things:

You've got $10m in online sales annually.
You've got $2m in returns from online sales, resulting in $8m total in net sales. This makes your return rate 20% of annual sales.
You've got a conversion rate per session of 3% – meaning 3% of each session actually buys something.
You've got an average order value of $100.
You're processing 100,000 orders per year, or on average 8,333 per month. Let's smooth out the holiday spikes for now.
With 3% conversion resulting in 100,000 purchasing sessions, you've got roughly 3.3million total sessions a year.

Assume a few more things that we've learned at Bazaarvoice:

Reviews can raise conversion by 20% to 30%. Let's assume 20%, so your new conversion rate would be 3.6% instead of 3%.
Reviews can reduce returns by 10% to 20%. Let's assume 10%, so your new return rate would be 18% instead of 20%.
Conservatively it takes your organization 90 days after going live with reviews to promote and make your customers aware. Most organizations hit this 90 day window easily, and some start day one with lots of content pre-collected.
For now, we'll ignore the other benefits of having user generated content on your site.

Now to the benefits…

When the program is live and running:

You'll be averaging 10,000 orders per month instead of 8,333. This will gross you $166,700 in revenue per month, or an additional $2,000,400 annually.
You'll reduce returns from 1,666 orders returned monthly to 1,500 orders returned monthly. This will gross you an additional $16,600 per month, or $199,200 annually.

Now let's look at the time value of reviews:

If you wait and only have reviews live and running for 3 months in 2009 you'll increase your total gross sales by $549,900, or 6.8% improvement of your previous $8,000,000 net after returns.

If you move quickly and get reviews live and running for 6 months in 2009, you'll increase your total gross sales by $1,099,800, or 13.7% improvement of your previous $8,000,000 net after returns.

If you move now and get reviews live and running for 9 months in 2009, you'll increase your total gross sales by $1,649,700, or 20.6% improvement of your previous $8,000,000 net after returns.

If you already moved, and are running and live for all of 2009, you'll increase your total gross sales by $2,199,600, or 27.5% improvement of your previous $8,000,000 net after returns.

Whatever your goals are, this content will help. Help you grow your business, help you improve your customer's satisfaction with your brand, and help drive your personal achievement as you execute flawlessly in 2009.

I know this is a simple approach to a complex calculation – which is why we've got an entire set of spreadsheets to help refine these calculations specific to your business. Email me at (osborne AT bazaarvoice DOT com) if you want our help in creating these spreadsheets for you – we're happy to do it. I'm the type that loves to know what I'm missing – and once you know, you won't want to miss out anymore…

Bazaarvoice's view in this uncertain economy

Brett Hurt — Sat, 18 Oct 2008 14:29:04 +0000

Things certainly change quickly – in the economy, in technology, and online – and I want to take a moment to fill you in on our outlook.

I’m extremely bullish on Bazaarvoice, as I have been all along. We have always spent judiciously and balanced between high growth and cashflow neutrality, and our current investments have enabled us to rapidly grow our Client Services team to best serve our more than 280 clients globally. We are 375 people strong and will continue to hire engineers to continue our development of ROI-driving products, features, and programs. You won’t find another company that has consistently developed as many new offerings – we have consistently delivered new features every seven weeks across 6 (soon to be 7) products in 20 international languages, and this will not slow down. Our culture is stronger than ever. It is truly humbling (and exciting, every day) to work at such a special place.

In the midst of the global economic uncertainty, I want you to know that we will continue to thrive as a financially viable, rapidly growing organization by staying focused on our most important job: effectively and passionately servicing our clients to deliver measurable results. You will see many companies with unproven business models fold over the next year, as I witnessed happening around us at Coremetrics during 2001-2002. But our business, and our business model, are very solid:

In our most recent quarter, we saw a 148% increase in signed clients and a 229% increase in revenue, compared to the same quarter a year ago.
We now serve more than 280 clients globally.
Currently, 90% of the Internet Retailer Top 50 and 80% of the National Retail Federation’s Top 100 who outsource reviews choose Bazaarvoice.
We have served over 17 billion product reviews to date, across 20 international languages.
We were voted one of Austin’s Best Places to Work this year for the second year running.
This week, we won the 2008 Marketing Excellence Award from ClickZ for our Ask & Answer solution.

To us, user-generated content must deliver a real impact to our clients. Here are some recent benefits they have seen:

Ask & Answer drives 72% higher conversion rate for PETCO.
Customer reviews drive 196% increase in paid search revenue for Office Depot.
Large French retailer, Mistergoodeal, sees 40% conversion increase.
Reviews help Cars.com drive “intent to buy”; 16% lead conversion increase.
Want more? Read 23 case studies here.

Now, more than ever, social commerce can have the greatest impact on the bottom line, including reducing support costs and product returns, and increasing site traffic, conversion, advertising ROI, customer satisfaction, and loyalty. In this economy, consumers will scrutinize their purchases more than ever, driving an increased need for user-generated content. They will reward businesses that help them make more informed and satisfying purchase decisions. Businesses that step up their pace of customer centricity will emerge as even stronger leaders after these challenging times turn.

We will continue to be the leader in social commerce. Our entire company is focused on our clients, and it excites us to see so much innovation and success from the smart people that choose to partner with us. Please let us know how we can help your business.

As always, keep an eye on this blog for more real-world ideas from our clients about how user-generated content works for them. Here are a few of my favorites from just this month:

21 Case Studies of Social Commerce Impact (yes…real $$)

Sam Decker — Wed, 24 Sep 2008 20:17:01 +0000

We didn't invent the term "Social Commerce." but we certainly have driven the visibility and clarified the meaning of the term over the past couple years. Unlike other "social" terms, the point of social commerce (and our company) is driving participation between your customers (social) in ways that drives real operational results (commerce). I wrote an article about the meaning of social commerce placed in eConsultancy and iMedia over a year ago.

So it's natural that we are fanatic about measuring the real impact (in terms of P&L) of our solutions. In fact, we have over 40 case studies, and have published 21 of them (so far) to our web site. Many more are coming related to the impact of Ask & Answer, Stories, and international deployments of our social commerce solutions.

While these case studies are listed on our site, many have asked for them and may not have seen them. So, I thought you may find it useful to see the list here. We also have PDFs of these case studies if you'd like them. Just email info (at) bazaarvoice.com, or you can download them directly from the site. Also, check out our white papers and research.