## April 23, 2018

### 30% Off!!!

Here's what a typical order looked like (from yesterday):
• Three items at \$35.00 = \$105.00 net sales.
• Cost of goods for three items at \$17.50 = \$52.50.
• Gross Margin Dollars = \$105.00 - \$52.50 = \$52.50.
• Shipping Revenue = \$10.00.
• Shipping Expense = \$8.00.
• Net Shipping Revenue = \$2.00.
• Total Profit from the Order = \$52.50 + \$2.00 = \$54.50.
At some point the widget business becomes "competitive" or "Amazon enters the space" or the merchandising team messes up and it's harder to sell widgets. A valuable marketing team has several tricks up their sleeve ... a typical marketing team says "30% off"!!!

Are customers surprised and delighted?

Well, you get more orders, that's for sure.

But the dynamics of your business have been changed.
• Three items at \$35.00 = \$105.00 demand.
• 30% off = \$31.50 discount.
• Net Sales = \$105.00 - \$31.50 = \$73.50.
• Cost of goods for three items at \$17.50 = \$52.50.
• Gross Margin Dollars = \$73.50 - \$52.50 = \$21.00.
• Shipping Revenue = \$10.00.
• Shipping Expense = \$8.00.
• Net Shipping Revenue = \$2.00.
• Total Profit from the Order = \$21.00 + \$2.00 = \$23.00.
You used to generate \$54.50 variable profit per order.

You now generate \$23.00 variable profit per order.

But order volume increases by 50% ... customers love your (albeit highly discounted) brand once again. Isn't that all that matters?

Well, here's the situation:
• You used to generate 1.00 orders at \$54.50 profit per order = \$54.50.
• You now generate 1.50 orders at \$23.00 profit per order = \$34.50.
Worse, you've trained your customer to expect 30% off.

Tomorrow we take a look at free shipping ... another favorite in the marketer playbook.