I am assuming that you already ask your Marketing VP to produce for you a Profit and Loss Statement, measuring the effectiveness of all marketing activities.
You do ask for this, right?
Here's what the Marketing Profit and Loss Statement looks like:
|Marketing Profit and Loss Statement|
|Net Sales||Expense||Profit||Profit %|
|Other Online Marketing||$1,000,000||$450,000||($80,000)||-8.0%|
|Earnings Before Taxes||$10,780,000||10.8%|
This is a healthy, 10% pre-tax profit business. But take a look at where profit comes from. Of the $20,780,000 variable operating profit generated by this business (before subtracting fixed costs), different marketing channels deliver different levels of profit, rank-ordered from best to worst.
- Organic Demand = $11,729,000.
- E-Mail = $5,050,000.
- Catalog Marketing = $2,800,000.
- Search Marketing = $700,000.
- Affiliate Marketing = $580,000.
- Social Media = $45,000.
- Mobile = ($44,500).
- All Other Online Marketing = ($80,000).
Those of us who measure the "organic percentage" (you know your organic percentage, right? RIGHT?!) can easily calculate the amount of sales generated without the aid of marketing. In this case, only 32% of total company demand is organic, but it accounts for more than half of company profitability!
And take a look at e-mail marketing. So few marketers ever parse the profit and loss statement by marketing channel. If you do this, be prepared to realize that e-mail marketing delivers a disproportionate amount of profit.
Now go think about the number of human beings you have working on catalogs, and the number of human beings working on e-mail marketing. Tally up the counts, and be prepared to be shocked!
This is a typical catalog profit and loss statement, by marketing channel. This is not unusual. Notice that the catalog only contributes $2.8 million of the $20.8 million in variable operating profit generated by this business.
Run the numbers, my friends. Be prepared to be shocked.
And if you don't have the right information to do this, hire me to calculate your organic percentage!