The Value Of Your Company Is Now Tied Up To The Number Of E-Commerce Customers You Have
When Unilever bought Dollar Shave Club a few months ago, many saw it as an industry powerhouse company taking out an upstart e-commerce merchant to knock out the competition. A clean, simple acquisition strategy. After all, Unilever sells blades for $5 each in a store, and when an online competitor like Dollar Shave Club sells them for $3/month all in, they quickly start to eat your lunch, maybe even your dinner. Upon closer look, though, this is much more than a “competitor take out” play. Understanding the motivations of this transaction will help you appreciate why turning offline customers into online customers must be a priority.
I suspect the Dollar Shave Club got its name because it has never made a dollar in profit selling razor blades online. So, why would anyone pay $1 billion for a losing business? Dig a little deeper. What Dollar Shave Club has is an active database of over two million men between the ages 25 and 65. These men all have good credit and their emails, credit cards, and physical addresses are validated monthly. They are all online buyers.
Translation: Dollar Shave Club created the best database in the world and they did it for free. The cost of keeping this database active is about $3/month per person, or about the same price as it costs to charge a credit card and mail out razor blades.
Imagine what else these two million men might incrementally buy? Shaving cream? What about face wash, after shave, deodorant, cologne? In other words: a lot of things that Unilever sells, but what else? Is it a stretch to sell them clothing? Electronics? Cars? What about seasonal gifts? Unilever paid $500 per record in the database. They will work hard to increase it to four million customers over the next 24 months. Unilever got a bargain. Imagine the lifetime value of each customer. Dollar Shave Club proved the upsell/cross sell part of the model as they began to sell millions of dollars in higher margin items to their $3/month subscribers.
So, how about your B2B technology business? Have you ever considered the value of your customer base? Imagine a small business with 20 employees. A conservative estimate is that each employee consumes $2,500 of technology goods and services, laptops, servers, printers, software subscriptions, and telephony every year. Imagine if these businesses bought those goods and services online from you. Imagine if they used a credit card. You could start off selling them something simple that they need each month—like a toner cartridge for their printer that is running out of toner. Just something to validate the customer as an online buyer. That’s how it all starts. Here’s the thing: your customers are each worth a heck of a lot more than $500.
The Dollar Shave Club was not valued at $1 billion based on its sales revenue and profits. It was all based on the value of its customer database. Customers that buy online are worth a whole lot more than offline ones.
Are you still reading this and thinking that e-commerce and digital marketing are not a fit for your business?
Boom. This is my mic drop moment.
Here’s my email: firstname.lastname@example.org .
Here’s my website: www.mpstoolbox.com .
I love talking about this stuff.