February 08, 2023

Gross Margins Matter

In a perfect world, the Categories possessing the largest share of annual sales would also be the Categories with the largest gross margin percentages ... that way, you maximize profitability.

Is that the case with this brand?


Remember, Category 11 is the Sun in the Category Solar System ... Categories 6/7 are Major Planets ... Category 10 seems to act like a large Comet.

What do gross margin percentages look like for each of the four Categories we've mentioned thus far?

  • 51.7% for Category 6.
  • 49.0% for Category 7.
  • 19.4% for Category 10 (oh ... my ... goodness).
  • 40.6% for Category 11.
#ohboy

This, ladies and gentlemen, is why we perform a Category Development project. 

Look at Category 10. Remember, this Category possesses 61.5% of sales of customers who buy from it. Those sales generate a 19.4% gross margin. That's not acceptable!! That's how we sub-optimize profit. In this case, this category represents "branded merchandise" ... this company buys products from vendors and resells them at a price largely determined by the vendor.

Category 11 is "the Sun" within the Category Solar System. But gross margins are just 40.6%, well below what we see in Category 6 (51.7%) and Category 7 (49.0%).

If you were running an email marketing program, which category "should" you feature in your campaigns? Yeah, tough question. Your response/conversion metrics will likely look good featuring Category 11. Profit will likely look good featuring Categories 6/7.

This stuff is SO MUCH FUN to dig into, don't you think?



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