March 22, 2022

Gross Margin by Category: Feature Stuff That Generates $$

Take a look at this set of information. Here are gross margin percentages by Category for a brand.
  • 43% = Category 0
  • 52% = Category 1
  • 47% = Category 2
  • 47% = Category 3
  • 37% = Category 4
  • 00% = Category 5 (this is a gift card category)
  • 52% = Category 6
  • 50% = Category 7
  • 55% = Category 8
  • 43% = Category 9
  • 53% = Category 10
  • 52% = Category 11
  • 59% = Category 12
  • 52% = Category 13
  • 55% = Category 14
  • 63% = Category 15
  • 58% = Category 16
  • 42% = Category 17
  • 53% = Category 18
  • 60% = Category 19
  • 51% = Category 20
  • 58% = Category 21
Categories 12/19 are the primary categories that customers love within this brand. Notice that these categories have hefty gross margins. Good!

As a marketer, you should ask questions about categories 2/3/9/17. Specifically, why should these categories be featured in a marketing campaign or email marketing campaign? Why are you asking the customer to spend more to generate comparable profit?

Example: Customer could purchase from Category 14 at a 55% gross margin, or the customer could purchase from Category 17 at a 42% gross margin. If the average price of an item is $70, the customer generates $38.50 gross margin dollars at 55% but just $29.40 at 42%. Selling the Category 17 item sub-optimizes profit by $9.10. Said differently, you have to sell the Category 17 item at $91.70 to generate the same amount of profit as selling the Category 17 item at $70.00.

Now I get it - there are a thousand reasons why Category 17 is critical to your assortment.

But as a marketer you need to ask tough questions. You control what is featured in marketing campaigns. Why ask the customer to spend $91.70 when you could ask the customer to spend $70.00?

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