Here's the image (below), and here's the source (click here).
Look at the "Sales and Marketing" portion of the equation. That's what a 35% ad-to-sales ratio does in combination with a 56% cost of goods sold.
Future purchases are greatly influenced by past purchases.
- Customers who bought organically without the need for advertising in the past tend to not need advertising in the future. Hint - these customers are VERY PROFITABLE.
- Customers who purchased because of print, television, radio, Google, Facebook etc. in the past tend to purchase because of advertising in the future. Hint - these customers ARE NOT VERY PROFITABLE ... requiring you to get more customers to achieve profit totals (while constantly deflating EBITDA as a percentage of net sales).
Catalogers (in particular) are wholly guilty of this dynamic. They pay co-ops for new customers (at ever-decreasing response rates). They pay Google for new customers. They pay Facebook for new customers. And then they pay printers and paper reps to keep the paper flowing every three weeks.
You can increase File Power by advertising, no doubt about it.
But you can also decrease/destroy profitability while greatly aiding third parties in the process.