How to use zip codes to estimate your shoppers' household income
Have you ever found yourself believing that you truly understand your customers, only to discover that your assumptions were totally wrong?
It happens to me all the time.
That why, when it comes to analyzing the customer base of any given ecommerce brand, I’m sharing four methods that I use to debunk my own assumptions.
All you need is your purchase data and a few external datasets I’ll link to below. (They’re either available for free or at a responsible price.)
Calculate the % of your customers who live in any given state or zip code.
Using a list of zip codes from your order data and this zip code-by-state dataset, map each zip code to its corresponding state. Use data from this Wikipedia page to calculate the delta between the distribution of where your customers live and the broader American population.
An example: If 10.23% of your customers live in Texas, you'll want to compare this number to the percent of Americans residing in Texas, which is approximately 7.5%. Replicate this approach at the zip code level using this dataset, which provides the population figures for each zip code.
Estimate the your customers average household income.
Using the same list of zip codes from your order data, get this income-by-zip code database, which lists the mean and median household income for each zip code in the United States. While inferring household income from zip codes isn't perfect, it often serves as the most viable option when direct data on household income is unavailable.
Find the gender ratio of your customers.
Download a list of first names from your order data and use this service to calculate the probability any given customer is male or female.
Spy on your competitors.
If you recruit a representative sample from your total addressable market, be sure to collect demographic data including age, gender, and income, and ask the respondents which competitors they use. This way, you can map the demographic profile of your shoppers against that of category leaders and gain insights into the demographics you are successfully reaching or potentially missing out on. (See image above for reference.)
That’s it. Simple yet powerful methods that can reveal valuable insights hidden within your data.
If you're currently designing a survey and have concerns about considering the demographics of your customers or your total addressable market, send me a note.
