September 25, 2022

A Little Productivity Goes A Long Way

Let's use the world of Google as our window into the magic of merchandise productivity.

Ok, you spend $15,000. You get 20,000 clicks. Congrats!  Of the 20,000 clicks, 400 customers convert and buy something, spending $100 each. Your profit factor (you know what your profit factor is, correct?) is 30%.

Net Sales = 400 * $100 = $40,000.

Variable Profit = $40,000 * 0.30 - $15,000 = $12,000 - $15,000 = ($3,000).

You lost $3,000. You got 400 customers to buy something.

Profit (Loss) per Order = ($3,000) / 400 = ($7.50).

You lost $7.50 per order.

Now, let's say that a year later your merchandising team increased productivity by 15%. That's a big deal! Does it matter when it comes to your marketing efforts?

Instead of 400 customers converting, you get 460 customers converting, spending $100 each.

Net Sales = 460 * $100 = $46,000.

Variable Profit = $46,000 * 0.30 - $15,000 = ($1,200).

You lost $1,200. You got 460 customers to buy something.

Profit (Loss) per Order = ($1,200) / 460 = ($2.61).

You went from losing $7.50 per order to losing $2.61 per order.

All because merchandise productivity increased by 15%.

Now imagine what happens if you were originally losing $2.61 per order? You'd be making money.

Marketers don't want to hear this fact ... but marketers are fully dependent upon their merchandising/product partners. When these people are successful, marketers are successful.

The smart marketer spends a lot of time figuring out which products work ... they spend more time on product than they spend on channels/keywords/conversions. By understanding the products that work, the smart marketer turns a loss into a profit. Everybody benefits. Because of a smart marketer.

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