A Better Way to Measure Whether Prime Day is Actually Worth It
It's a given: to participate in Prime Day, you'll need to spend big on PPC (pay per click) advertising. Especially this year, when many sellers are starting to feel the margin squeeze, you might be wondering if all this extra expense is worth it at all.
At Nozzle, our customers typically sell products with decent repeat order rates and high customer lifetime values (CLV) (aka profit per customer). Examples include food and drink, supplements, pet products, beauty and household consumables such as toilet paper and cleaning liquids, etc.
A large concern is that these Amazon Sellers are spending more to acquire new-to-brand (NTB) customers, as the PPC costs are far higher on Prime Day, coupled with the fact many of these customers are either:
- Existing customers who perhaps would have bought from you anyway at full price anyway; and
- NTB customers that are opportunistically deal-hunting and are therefore much less likely to purchase from you again.
We decided to look into this and I’m excited to share the perhaps unexpected results!
Does Prime Day directly impact customer lifetime value?
The central question to answer was:
Does the increase in new-to-brand (NTB) customers from Prime Day offset the expected drop in the 3 month customer lifetime value (CLV) in pure dollar gross profit terms as we assume some of these NTB customers are simply deal-hunting?
We would assume that an Amazon Seller could be happy sacrificing a little bit of CLV if there’s a large enough gain in NTB customers so the net effect results in a higher gross profit.
Let's break down how we can validate this:
Construct a benchmark, then compare
The first step is to create a basis for comparison by constructing a benchmark.
In this example, we first isolated the ASINs that were discounted for Prime Day ‘21. Then, we used our cohort analysis report to analyze the three cohorts by month after Prime Day (Aug, Sept, and Oct ‘21) for NTB customers who bought these ASINs as their first purchase.
Next, we took the average gross profit of these three cohorts using the following calculation:
NTB x (CLV - CAC)
(CAC = Customer Acquisition Cost)
… and compared this number to the Prime Day cohort’s gross profit after 3 months using the same formula.
In our example (a supplement brand), you can see that the average cohort gross profit from Aug - Oct ‘21 was $111,128. Each cohort gross profit is calculated by subtracting the CAC from the 3 month CLV and then multiplying by the new-to-brand customers.
For instance, for Aug ‘21, the calculation is 22,497 x ($12.35 - $7.50) = $109,110
What happens when we isolate the Prime Day cohort? Well, for our supplement brand, the 3 month profit from the cohort is $89,026. They’re actually worse off by $22,102 (or 20%)!
A smarter way to Prime Day?
With the above data in mind, this year many of our customers are running experiments on mid-tier ASINs where they’re not running any deals at all on Prime Day. Essentially, these sellers are finding ways to take advantage of the surge in traffic, without pouring more advertising budget into Prime offers.
You can bet we’ll report back with the results of those experiments in the next few months!
🤓 Jargon & acronyms got you confused? Check out our ultimate guide to Amazon Analytics
A few caveats with this analysis:
- We didn’t factor in the wasted spend attributed to returning customers, many of whom will have bought at full price anyway
- There’s also an argument that some of these returning customers had actually churned already (i.e. hadn’t bought from you in, say 12 months, and were unlikely to ever buy from you again) so the ad actually “reactivated” them which is clearly a good thing! We have done some analysis of this effect already, see our video on this here.
- We didn’t take into account the size of the discount as this can clearly swing the outcome
- Clearly, your mileage may vary if you change the benchmark construction (last 6 months vs last 3 months) or use a 6-month CLV instead of a 3-month CLV - we'd recommend spending some time analyzing trends for your own ASINs to understand the time periods that are most relevant and appropriate for your brand
Want your own Cohort Analysis to see if Prime Day is worth it for you? Sign up for a free 14 day trial of Nozzle Analytics. Our tool is made for Amazon sellers like you that want to understand exactly how your customers are behaving.