March 01, 2020

A Quick Investment Quiz

You have a customer segment. If you choose to mail old-school catalogs to this segment for a year, you will gain the following sales outcome.

  • Sales Increase This Year by $3.0 million.
  • Sales Increase Next Year by $1.8 million.
  • Sales Increase in Year 3 by $1.0 million.
  • Sales Increase in Year 4 by $0.6 million.
  • Sales Increase in Year 5 by $0.4 million.
  • Five Year Sales Gain = $6.8 million.
You also gain the following five year profit outcome.

  • Profit Decrease This Year is $0.3 million.
  • Profit Increase Next Year by $0.3 million.
  • Profit Increase in Year 3 by $0.2 million.
  • Profit Increase in Year 4 by $0.2 million.
  • Profit Increase in Year 5 by $0.1 million.
  • Five Year Profit Gain = $0.5 million.
In other words, the act of mailing catalogs results in a nice sales gain, a loss this year, and then downstream profit because customers were reactivated / retained. In total, you lose $300,000 this year but make $800,000 in the future, for a net gain of $500,000 profit.

Do you lose money today to make money long term?

Do you make money today and post better results this year?

Select one outcome or the other, and then discuss why you made the choice you made.

Thanks,
Kevin

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