December 03, 2006

What Is More Important, Sales Increases Or Increased Profit?

In a recent comment, Ray S. asked if it is acceptable to have an advertising campaign that increases net sales, but does not increase profit.

Let me pose two scenarios to you.

Campaign Result, Scenario #1: Net Sales increase by $100,000 verses last year's campaign. Profit is flat, compared with last year's campaign.

Campaign Result, Scenario #2: Net Sales decrease by $100,000 verses last year's campaign. Profit increases by $25,000, compared with last year's campaign.

Ok, you are the CEO of this company. Which of the these two scenarios is preferable to you?

9 comments:

  1. Anonymous7:49 AM

    It is not possible to offer a reasonable answer with the information that is provided.
    Certainly profit is what drives business; however, it may be that the company needs to expand its market share or expand share-of-wallet in which case revenue may take the front seat to profit. The art is not in choosing either but on obtaining a profitable balance of both depending on the strategic objectives for the company

    Adelino de Almeida
    adelino.typepad.com

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  2. If I had a dollar for every time I had a discussion with an executive about this ... and the only real information was what was shared above, I could purchase a steak dinner.

    At Eddie Bauer, our CEO only wanted solutions that drove both sales and profit. I didn't get a lot of love for shrinking a catalog business by 5%, while producing all-time record profits.

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  3. Sure, both is always the right answer, but if you had to prioritize them (which you almost always have to do), I would grow sales, which is equivalent to growing the business. Once you have the business, you can later turn your focus inwards to squeeze costs, thereby growing profits. My response may read a little academic, but that's how I'd approach it.

    www.SimplifyThis.com

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  4. Thanks for the response, Sanjay!

    I tend to have the opposite point of view. I like profit. And during my career, I've found that I am in the minority on this topic.

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  5. Ray S4:37 PM

    Thanks for the notes guys, Kevin I loved your part on the steak dinner! I haven't had too many opportunities (yet!) to meet with the CEO, but I've also heard solid debates amoing directors with only the information you've provided.

    Apparently I lean towards the minority as well, as I am personally inclined towards profit. As marketors we have finite choices - an initiative with increased sales but no profit can't be the BEST choice, right? I think I'd repurpose the dollars and task my team with finding an iniative to drive both and not settle for solely top line growth. Any finance guys out there with an opinion? At the end of the day, profit is what pays the bills, correct?

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  6. Adelino makes a good point, that the discussion should include an understanding of what the objectives are. And Sanjay's perspective is generally accepted as being reasonable --- my old CEO at Eddie Bauer used to say to me "GROW OR DIE". There's nothing unclear about that!

    And Ray, if you are ever in Mason City, Iowa, stop at the Northwestern Steak House, where you'll get the best steak dinner in the world for the dollar every executive gave you for discussions about growing sales or profit.

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  7. Ray S3:50 PM

    Kevin - believe this or not - I was in Mason City last weekend and did indeed enjoy a steak at the NW Steak House! Steak on pasta - can't go wrong!

    Unfortunately that steak came out of my own pocket, but good nonetheless! Talk about a small world!

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  8. My wife procured the special blend of butter and greek seasoning they douse the steak and pasta (or rice) with. It can be replicated!!

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  9. Anonymous1:40 AM

    This comment has been removed because it linked to malicious content. Learn more.

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