July 08, 2019

An Example

Say you manage a paid search program. Last month you spent $100,000 and the following happened.
  • Cost = $100,000.
  • Clicks = 200,000.
  • Conversion Rate = 1.9%.
  • AOV = $100.
  • Profit Factor = 45%.
We have enough information to calculate profit, don't we?
  • Profit = 200,000 * 0.019 * $100 * 0.45 - $100,000 = $71,000.
You did a good job, didn't you??

The program you inherited performed as follows:

  • Cost = $100,000.
  • Clicks = 200,000.
  • Conversion Rate = 1.3%.
  • AOV = $85.
  • Profit Factor = 45%.
Profit = ($550).

Why do you calculate profit?

Well, you just made your company an incremental $71,550. Your company can do several different things with the money.
  1. Pocket it.
  2. Re-Invest it in marketing activities.
  3. You can lobby for an entry-level marketing staffer to help you find more opportunities to make money, giving you the opportunity to be more strategic which causes your company to make more money.
Profit allows you to easily determine your value to your company. I inherited a hot mess of a marketing team at Nordstrom in 2001 ... a year later when we demonstrated we generated an incremental $9,000,000 of profit we were able to get the resources we needed to be successful. All because we calculated the profitability of our efforts.

Calculate profit, ok?

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