October 07, 2007

Profitability

Profit is the reason we are allowed to remain gainfully employed. Conversion rate doesn't keep us employed. Profit keeps us employed.

How often do we hear e-mail marketers talk about, or ever demonstrate the profitability of their activities? I'm not talking about "ROI", nor an 8% improvement in open rate. How often do these industry experts talk about "profit"? Same for search marketers, or other online marketers.

In some ways, a generation of marketers are being trained to look at the business in unique and different ways. That's good. However, this generation isn't always focused on the metric that matters most.

"Back in the day", Lands' End measured the profitability of every spread in a catalog. Every major catalog was analyzed by a team of merchandising, creative, inventory and circulation staffers.

If I remember correctly, each spread in the catalog was grouped into one of four categories.
  • Spreads that generated 30% or better variable profit (profit before fixed costs) were coded "GOLD".
  • Spreads that generated 20% to 30% variable profit were coded "GREEN".
  • Spreads that generated 10% to 20% variable profit were coded "BLUE".
  • Spreads that generated less than 10% variable profit were coded "RED".
Each spread was hung on the wall of a conference room, in sequential order, hung on tag-board of different colors ... the color representing the profit category the spread fell into. At the bottom of the spread, the profitability of each item in the spread was itemized --- demand, fulfillment rate, return rate, net sales, gross margin, marketing cost, and pick/pack/ship expense.

Visually, a story was told in that conference room. One could visually understand why a catalog worked, or why it didn't work. We'd have a discussion about how to present merchandise, how to merchandise the front of the catalog (an important factor that more folks could pay attention to).

Fast forward to today. How many online marketers can give you, the direct-to-consumer executive, a set of metrics that clearly and easily tell you the profitability of items online. Do you have any reporting that tells you the profitability of a landing page? How about the home page?

Every employee should intuitively understand the connection between selling merchandise, marketing merchandise, and generating profit.

Seriously ... take a spin through the e-mail marketing and search marketing literature/blogosphere/vendor-speak. Count how many times you see the word "profit" mentioned.

Let's help these bright marketers make the connection between their efforts, and the profitability of the businesses we manage. We're failing these individuals, we're not training them to be the accountable leaders we need them to be. We need to protect the future of our industry.

2 comments:

  1. Anonymous7:33 AM

    Kevin-
    There are some multichannel merchants out there that view the online world as being "free". As you know in the print and retail world you have to pay big bucks to repaginate at the last minute, or shift the focus of the store. In the virtual world it happens in a "black box". This skews the perception of profitability for some people who get too caught up in clicks, views, and time spent viewing each page. Besides, we all know catalog drives a significant amount of web traffic--the web guys do not like to acknowledge it b/c it hurts their P&L.

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  2. How would you mentor your online marketing partners?

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