Nutrisystem 2006 Annual Report Download - page 31

F
inancial and Operatin
g
Statistics for the Direct Channe
l
(
i
nt
h
ousan
d
s, except customer
d
ata)
2006
2005
2004
R
evenu
e
........................................................
$
526,715
$
189,274
$
30,79
8
C
ost o
f
re
v
enu
e
...................................................
2
41
,
172 91
,
534 15
,
950
Gross marg
i
n ....................................................
$
285
,
543
$
97
,
740
$
14
,
84
8
%
o
f
re
v
enu
e
.................................................
5
4.2%
5
1.
6
%4
8
.2
%
Marketin
g
Ne
wC
ustomers
.
.............................................
$
116
,
152
$
47
,
313
$
7
,
537
Former
C
ustomer
s
............................................
1,
94
6
——
T
ota
l
.
......................................................
$
118
,
098
$
47
,
313
$
7
,
537
%
o
f
re
v
enu
e
.................................................
22.4% 2
5
.
0
% 24.
5%
N
ew customers
P
rogra
m
.................................................... 791
,
004 338
,
040 48
,
377
T
ota
l
.......................................................
797,606 347,337 51,783
Marketin
g
/new custome
r
P
rogra
m
....................................................
$
147
$
140
$
156
T
ota
l
.
...................................................... $ 146 $ 136 $ 146
R
evenue/customer (9 month trailin
g)
T
ota
l
.
......................................................
$
632
$
605
$
513
Ne
w
customer re
v
enue
/
ne
w
customer
P
ro
g
ra
m
.................................................... $ 574 $ 516 $ 482
T
ota
l
.
......................................................
$
569
$
505
$
460
D
irect revenue increased 178% in 2006 from 2005. In 2006, the number of new customers acquired
increased b
y
4
5
0,269, or 130%, over 200
5
. The increase in new customers is primaril
y
attributable to hi
g
her
marketing spending; marketing to new customers increased
$
68.8 million, or 145% in 2006 compared to 2005.
C
omparin
g
direct channel results in 2005 to 2004, revenue increased 515%. In 2005, the number of ne
w
customers acquired increased b
y
29
5
,
55
4, or
5
71%, over 2004. The increase in new customers is primaril
y
a
ttributable to higher marketing spending; marketing increased 528% in 2005 compared to 2004. The cost
e
ff
ect
i
veness o
f
t
h
e mar
k
et
i
n
g
spen
d
a
l
so
i
mprove
dby
one cr
i
t
i
ca
l
measure: overa
ll
mar
k
et
i
n
g
spen
d
per ne
w
customer was $136 in 2005 com
p
ared to $146 in 2004.
D
irect gross margin increased to 54.2% in 2006 from 51.6% in 2005, primarily driven by a 3.5% pric
e
increase. Direct
g
ross mar
g
in increased to 51.6% in 2005 from 48.2% in 2004, primaril
y
driven b
y
pricin
g
net of
the effect of pro
g
ram enhancements and partiall
y
offset b
y
increased promotional costs primaril
y
arisin
g
fro
m
o
ur “Wee
k
Free” promot
i
on on
i
n
i
t
i
a
l
or
d
ers
.
Marketin
g
cost per customer increased from $136 to $146 from 2005 to 2006. Marketin
g
cost per pro
g
ram
customer increased from $140 to $147 in the same periods. The hi
g
her marketin
g
cost per pro
g
ram customer can
b
e attr
ib
ute
d
to t
h
es
i
gn
ifi
cant
i
ncrease
i
n mar
k
et
i
ng spen
d
, part
i
cu
l
ar
l
y spen
di
ng to promote t
h
e men’s program
.
Th
e mar
k
et
i
n
g
cost to acqu
i
re a ma
l
e customer was
high
er t
h
an t
h
e cost to acqu
i
re a
f
ema
l
e customer
i
nt
h
e
second half of the
y
ear. We initiated marketin
g
of our men’s pro
g
ram in Januar
y
2006. Men made u
p
a
pproximately 24% and 13% of new customers in 2006 and 2005, respectively. In the fourth quarter of 2006 men
represente
d
31% o
f
new customers.
We measure revenue per customer two wa
y
s. First, we anal
y
ze revenue per customer obtained in the firs
t
n
i
ne mont
h
s
f
o
ll
ow
i
ng a customer’s
i
n
i
t
i
a
l
purc
h
ase, re
f
erre
d
to as t
h
e
i
n
i
t
i
a
ldi
et cyc
l
e. T
h
e revenue per
customer in the initial diet c
y
cle for a
g
iven month is the revenue obtained in that month from customers within
nine months of their initial purchase divided b
y
the new customer count for each of the last nine months. For
report
i
ng purposes, we use t
h
e average revenue per customer compute
di
nt
h
e tra
ili
ng n
i
ne mont
h
s. Genera
ll
y,
25