January 09, 2019

Delta Between Price And Cost Of Goods Sold

Marketing Margin is significantly impacted by Cost of Goods Sold.

An Electronics merchant might sell items that have an 80% cost of goods sold. This means that for every $100 sold, there's only $20 of marketing margin available. The Electronics merchant cannot afford expensive catalogs or expensive discounting or expensive loyalty programs, simply because there won't be any profit left.

An Apparel merchant might sell items that have a 35% cost of goods sold. This means that for every $100 sold, there's a whopping $65 of marketing margin available. It is any wonder that marketers want a piece of that?

The delta between price and cost of goods sold determines the marketing strategy used by a brand.
  • High COGS brands must employ low-cost marketing strategies, because there isn't money available to be invested in marketing strategy.
  • Low COGS brands can generate a TON of profit if the marketer team does not absorb the delta between Price and COGS via marketing spend.
A smart CFO questions every marketing dollar spent ... because if the marketing dollar fails to increase profit dollars, then an investment opportunity has been lost.

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