September 05, 2022

Gross Margins and Marketing Investment

Duluth Trading Company generates 55%ish gross margins. For every $100 they sell they produce $55 cash. Then you back out pick/pack/ship expense and it is reasonable to guess they generate $40 cash per $100 sold. This means there is a lot of cash available for marketing purposes.

Best Buy generates 22%ish gross margins. Back out pick/pack/ship expenses and they likely generate $10 cash per $100 sold.

Which company can afford to generate new customers via paid marketing channels?

Which company must be a lot more clever?

Some of the biggest marketing blunders I’ve been associated with over 3.5 decades doing this work involve new marketing teams trying to rebuild brands without an understanding of how gross margins dictate marketing investment. It is frustrating to see the channel-centric investment approach leveraged when gross margins don’t let you lose much money acquiring a customer.

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