May 01, 2022

Question Week: Question #1

Here's a question:  "Hi Kevin, listen, I just don't understand your obsession with margin and profit. Who cares? Let the CFO figure out if our efforts matter, and if they don't matter let the CFO bring the hammer down. I just want to do my job. Thanks, Henry."

Henry, what is wrong with you?

I've worked with more than 250 companies. Maybe 20 of those companies thoroughly understood margin and profit. Those companies, not surprisingly, were "high performers" ... their rate of generating profit was high, their ability to generate profit was high, and the bonus levels of the employees was "high".

I've spent the better part of 2022 talking about margin/profit. The feedback I've received has been fascinating. One individual on Twitter told me that his company didn't know what their products cost. Come on! And when I explained how one might arrive at an estimate, he threw up roadblock after roadblock. In other words, he didn't want to know how much his products cost, because if he knew he'd have to make different decisions.

Another individual argued with me, suggesting that Return on Ad Spend (total sales divided by total ad spend) is the metric that matters most. Come on! ROAS is essentially profit if you just take the calculation a few additional steps. Why not do the work? Why be lazy?

I repeatedly hear the phrase "I just want to do my job". Lazy. That means you want to do your job with imperfect information and you don't care if you are sub-optimizing your business.

What if the CFO decided that your salary would be variable, and based entirely on the gross margin dollars you generate? What would you do in that situation? We both know the answer, don't we?

Just because Google Analytics waters down your analytics to the point of "scalable homogenization" doesn't mean you should play along with Google.

Do the work!

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