Virtual Economics

Don’t Just Act – ReACT!

Simon JonesVP Strategic Solutions, Plimus

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It’s A Whole New World

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Everyone Loves Economics

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…But It’s Not As Bad As All That

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The Basics Are Easy to Grasp

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Perhaps More Seriously…

Gross Revenue = (Cost to Produce & Sell) – Price Paid

Simple Example

Cost$5: R&D $50: Raw Materials$10: Marketing$5: Inventory$5: Distribution

Price Paid$150

Gross Revenue$150-$80 = $70

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Fixed vs. Variable Costs

Fixed CostsFixed Costs

Variable CostsVariable Costs

Costs Incl. Rent, Salaries, Etc.Costs Incl. Rent, Salaries, Etc.

Don’t Vary with Sales LevelsDon’t Vary with Sales Levels

Direct Costs: Raw Materials, Inventory Management, Distribution, Etc.Direct Costs: Raw Materials, Inventory Management, Distribution, Etc.

Vary In Line with SalesVary In Line with Sales

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What They’re Doing At Your Digital Factory

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Your Digital Warehouse

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Virtual Economics: The Digital Revenue Model

Traffic

RetentionClose Rate

Average Order Value

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Traffic -> Close Rate

• Convert Desire to Action

• Traffic Is Elastic– Close Rate Needn’t Be

• Simple Fixes– Languages– Currencies– Payment Types– Processes– Etc…

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Example: OneHourTranslation

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Close Rate -> Average Order Value

• When The Wallet Is Open– Extract More

• Never Miss The Opportunity

• Remember Cognitive Load– Don’t Confuse, Inform

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Example: Slitherine

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Retention Rate

• # of Sales / Customer– Rate of 1.0 is 1 per– Rate of 2.0 is 2 per

• Create Retention Benefit– Can be non-economic

• Expand Relationship– From business– To emotional bond

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Example: Matrix Games

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Put It All Together With Some Math

Revenue = ((Traffic / Close Rate) * Average Order Value) * Retention

• Scenario A– 10,000 Visits, 7% Close Rate, $50 AOV, 1.1 Sales/Customer– ((10,000*7%)*50) * 1.1 = $38,500

• Scenario B: Increase Close Rate by 2%– ((10,000*9%)*50) * 1.1 = $49,500

• Scenario C: Increase AOV by 10%– ((10,000*7%)*55) * 1.1 = $42,350

• Scenario D: Increase Both– ((10,000*9%)*55) * 1.1 = $54,450– >41% Growth in Revenue

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Remember: ReACT

Traffic

RetentionClose Rate

Average Order Value

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THANK YOUTHANK YOU