Is An Item Profitable?
So many of us in multichannel retailing are asked to quantify how individual marketing activities perform.
We measure the effectiveness of an e-mail campaign. We prove that catalogs and direct mail drive business to the online channel.
Congratulations, we demonstrated that advertising works! Maybe.
Now it is time for us to measure how advertising influences the sales of individual items. I don't sense that our industry is doing the best job of measuring the profitability of an individual item, after factoring in the effect of advertising.
At the end of this post, I include a template for measuring the overall profitability of a specific item. In this case, we advertise the item through catalogs, through e-mail campaigns, and through online advertising (search, portals). During the course of an eight week period of time, we total the sales of the item, both online and over the phone. We also sum all advertising of that item.
What follows is a multichannel profit and loss statement for an item. This exercise should be replicated for every item sold by your business. Yeah, that's a lot of work. But how else are you going to know what sells, what sells because it is advertised, and what doesn't drive profit?
Quite honestly, the advent of the online channel has reduced our industry's zeal to understand the profitability of items. In catalog, it is easy to measure profitability. We need to have a passion for understanding which items truly work, across all channels.
Here, then, is a mocked-up template for the multichannel profitability of a single item. If you work for a business that also has a retail channel, simply add an additional section to the template for the retail channel.
Multichannel Merchandise Profit And Loss | ||
Catalog Metrics | ||
Catalogs Mailed | 1,000,000 | |
Total Pages in Catalog | 124 | |
Total Book Cost | $1.00 | $1,000,000 |
Percent of Page Allocated | 33.0% | |
Cost To Advertise This Item | $2,661 | |
Total Responses | 225 | |
Response Rate | 0.02% | |
Response per 000 Pages | 0.07% | |
Units per Order | 1.15 | |
Total Units Sold | 259 | |
Price per Unit | $65.00 | |
Total Demand | $16,819 | |
Fulfillment Rate | 88.0% | $14,801 |
Return Rate | 25.0% | $3,700 |
Net Sales | 66.0% | $11,100 |
Online Metrics | ||
Total Visits To The Website | 1,483,005 | |
Total Visits, This Item | 4,593 | |
Total Website Cost, Non Adv. | $800,000 | |
Cost Allocated To This Item | $2,478 | |
Placed In Shopping Cart | 25.0% | 1,148 |
Total Responses | 55.0% | 632 |
Units per Order | 1.08 | |
Total Units Sold | 682 | |
Price per Unit | $65.00 | |
Total Demand | $44,334 | |
Fulfillment Rate | 94.0% | $41,674 |
Return Rate | 25.0% | $10,418 |
Net Sales | 70.5% | $31,255 |
Multichannel Profit And Loss Statement | ||
Multichannel Net Sales | $42,356 | |
Gross Profit | 48.0% | $20,331 |
Less: Book Cost | $2,661 | |
Less: Website Cost | $2,478 | |
Less: E-Mail Cost | $1,500 | |
Less: Online Marketing Cost | $3,550 | |
Less: Pick, Pack, Ship | 11.5% | $4,871 |
Variable Operating Profit | $5,271 | |
Profit as a % of Net Sales | 12.4% |
Labels: catalog, Demand, Loss, multichannel, Net Sales, online, Profit
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