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…

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.

The Bazaarvoice Social Commerce Blog » revenue

Why Waiting Hurts – Net Present Value of Reviews

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