January 27, 2022

Just Spend More, Then!

Well, maybe.

Here is our base case.

Let's assume that we'll spend 20% more next year ... even though we proved in our last post that we are already overspending on marketing, harming profitability (in the short-term).

There goes profit ... plunging down to $9.5 million from $11.7 million. You don't make it up through five years, either. But for one year, sales increase, and you get an additional $1,000,000 to $3,000,000 in sales in future years.

Again, the business is just trapped, isn't it?

What happens if you spend 20% more for each of five years?

Now the top-line is growing annually ... it's no longer stuck ... but profit is in the toilet, costing you eight million in profit over five years.

You can't get out of the rut via tepid increases in advertising spend.

You'll need better merchandise.

And you'll need a low-cost / no-cost customer acquisition strategy.

This is why I continually harp on these concepts. When you run simulations for a brand that is already spending too much money on marketing (i.e. ad-to-sales > 20%), you know the truth. 

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