Estimating the number of free online orders: A follow-up to a post by click_on_me33 on 20 March
I also want to pick up an idea started by click_on_me33 from his post on March 20th, where he said:
From Page 66 of the 10-K:
In 2012 the Company sold approximately 51% of it’s Anatabloc ® product through its consignment arrangement with GNC. Pursuant to this arrangement, the Company is paid weekly for sales from the previous week. The accounts receivable for consignment sales therefore is not outstanding for a period longer than 7 days.
Chipper, with this 51% figure you may be able to estimate exactly how much revenue Star is making per sale at GNC. However, also note on page 54 "Revenue Recognition" it states:
Star records consumer incentives and trade promotion activities as a reduction of revenues based on amounts estimated as being due to customers and consumers at the end of a period. The estimates are based principally on historical utilization and redemption rates of the Company’s products. Such programs include discounts, coupons, rebates, slotting fees, in-store display incentives and volume-based incentives.
Suppose STSI's total revenue is $2M, as it was in Q4 2012. Then GNC gave STSI $1.02M and the STSI website gave $0.98M. Q4 had 25423 web site orders, which translates to $38.55 per order.
To separate out free orders, we need to estimate the average revenue per real paid order. Our anecdotal evidence seemed to indicate between 1.1 to 1.4 bottles per order, or $110 to $140 per order. If we assume the low end of $110, then using simple algebra to solve for X (the number of paid orders), we get:
X * $110 + (25423 - X) * 0 = $980,000
or X = $980,000 / $110 = 8909 paid orders. Which implies that about 35% of all orders are paid and 65% are freebies. The paid percentage goes down as the ASP per order goes up.
Now, as to click's idea that we can estimate how much revenue Star gets for each GNC sale, we would need to estimate the average number of sales per GNC store per quarter. Any ideas?