September 15, 2015

Profit

Ok, we've already discussed the two components of "my system":
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
The third component is "profit".

Let's go back to Lands' End, circa 1993. Our circulation director was Lori Liddle, an accountant turned cataloger. Lands' End was a company obsessed with segment-level sales plans by catalog, and for good reason ... it turns out, there were nuggets of gold in those segment-level sales plans.

Ms. Liddle would riddle her poor circulation planners into oblivion, all in an effort to get the most out of them, and to get the most out of the business. She'd question their ad-cost assumptions ... "this catalog is $0.53 cents ... that can't be true, last year the catalog was $0.55 cents" ... or "did Finance give you a 58% gross margin percentage, because according to finance, gross margins are projected to be 58.3%, and if we can get an additional 0.3 points of margin, we can circulate an extra 150,000 catalogs, growing sales by $300,000".

She did this over and over and over, asking her people to re-run scenarios until they couldn't take it anymore!

And she was right.

All of that focus on profit would lead to an additional million or two million dollars of profit, on an annual basis, or three million, or five million. Owners, investors, and finance folks love profit.

I noticed that this individual was invited to meetings she had no right to be in ... and her thorough knowledge of profit allowed her to provide input that no circulation expert had any right to offer. I learned that profit was the language of business.

So in 1999, at Eddie Bauer, with merchandise productivity in the toilet, I borrowed all of Ms. Liddle's techniques, swapping out the bloated and underperforming monthly catalogs for prospect catalogs, and in the process, helped generate record levels of profit.

When you don't have sufficient merchandise productivity, you use profit measurements to optimize the mess you are in.

When you do have sufficient merchandise productivity, you use profit measurements to grow the business faster than you ever thought you could grow it.

We now have three components in my system:
  1. Annual Repurchase Rates dictate the strategy a marketer needs to employ - and in most cases, that strategy is to find a ton of new customers.
  2. If we have to find a ton of new customers, and most of us have to find a ton of new customers, we need healthy levels of merchandise productivity to get the job done.
  3. If we have poor merchandise productivity, we optimize via profit to get the most out of a bad situation. If we have good merchandise productivity, we optimize via profit to obtain out-sized sales and profit growth.