Archive for the ‘profit’ tag
Catalog Marketing – Profit Means Everything!
You see it everywhere you go … profit just laying on the ground … with nobody motivated to bother to pick it up and stick it in their wallet!!
When a business is dysfunctional, profit leaks out, everywhere. From analysts choosing to measure “conversion” instead of profit to email wonks looking at opens/clicks/conversions to cloud-based catalog circulation folks, we barely bother to measure profit.
Internally, we lack discipline … high return rates, high pick/pack/ship expenses, all of it hurts the p&l.
Look at this example … the first company does a credible job of generating profit … with 45% of demand flowing through to profit.
The second company lets profit leak, or they fail to measure profit accurately and just stick a “40%” factor into their decision-making processes.
The first company, with a 45% profit factor, can mail down to 1,800,000 circulation depth … generating $4,024,922 demand.
The second company, with a 40% profit factor due to either a leaky profit bucket or an analyst making a random, arbitrary 40% profit designation, can only afford to mail 1,400,000 customers, generating $3,549,648 demand.
Which business would you rather be part of? I’d pick the first business … the focus on profit allows the business to generate 13% more demand.
If the second business has a leaky bucket, then this is the true impact on the business.
- Scenario #1 = $4,024,922 demand, 40,249 orders, $911,215 profit.
- Scenario #2 = $3,549,648 demand, 35,496 orders, $719,859 profit.
- Scenario #1 = $4,024,922 demand, 40,249 orders, $911,215 profit.
- Scenario #2 = $3,549,648 demand, 35,496 orders, $897,342 profit.
Pinterest for Non-Profit Brands
Pinterest is continuously becoming a famous online platform to various brands, including non-profit organizations. They can use the online pinboard to connect with other people based on their “shared tastes and interest.”
Know Your Audience
Before you take the waters of Pinterest and start your campaign, it would be ideal to know who uses the service. According to MDGadvertising, 87% of Pinterest users are women with an average age span between 25 and 54.
Take advantage of this information by outlining your organization’s profile based on this demographic. This will enable you to provide an inviting content for Pinterest users. That way, it’ll be easy for you to get personal with your followers.
Give Your Organization a Face
Pinterest is an image-heavy platform. That being said, you can use this to give your organization a face and identity. Pin photos and videos that shows your staff, volunteers and the people who benefit from your organization. That way, you’re showing your followers that something can be achieved through your group, and that you’re more than just a name and a logo.
Connect with Other Non-profits
Since Pinterest is also considered as a social media, it means that this is not designed to hard sell your organization. Working with relevant non-profit groups is one way to build your online presence on the virtual pin board. This will help you connect with their followers, thus increasing your fan base too. Moreover, letting other people contribute on your board adds diversity on your content.
Start a Fund Raising Campaign
Having a Pinterest makes it easy for your organization to start a fund raising campaign. After pinning the image, just type the “$” sign with the price on the description box. The online pin board will automatically add a banner on the to-left corner of the image, and it’ll be added on the Gifts tab on the homepage.
Post Videos
Videos may not be that popular on Pinterest, but it can also provide a strong call to action for your campaign. It also adds emotion to your campaign that images sometimes can’t give. Your followers are most likely to help your organization if you have a compelling content like a short video presentation.
Using Pinterest may be a solitary action, but it is also a great tool to create a community around your orgranization. When used properly, it can serve as an extension for a non-profit group. What’s important is that you can create an online presence that’s inviting for your followers to share their stories, not just on your board, but also with relevant people.
Source: Pinterest Home Page
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Japan’s DeNA Appears Unfazed By Gaming Mechanics Ban As Profit Is Up 20%
At least for the time being, Japan’s multibillion dollar gaming giant DeNA appears to be unaffected by the government’s recent inquiry into ‘gacha’ gaming mechanics. Profits were up 20 percent year-over-year to 10 billion yen ($127.3 million), and rose 6 percent quarter-over-quarter. Overall revenue was up 37 percent to $605.9 million.
Japanese gaming companies have faced some headwinds in the early part of this year as the country’s consumer affairs agency cracked down on a gambling or ‘wishing well’-like gaming mechanic called kompu gacha that randomly awards players prizes (kind of like a slot machine). The biggest mobile gaming companies in the country like DeNA and GREE have stepped back from using them, which has put downward pressure on their share prices. DeNA removed these mechanics from its games in May (or two months into the quarter). The company said that increased spending on virtual currency offset the loss of these mechanics, although we’ll only see the real effects perhaps in the next quarter.
“There was some concern in the investor community that it would have a pretty dramatic impact on sales and the good news for us is that it didn’t really have the type of impact that was feared,” said Neil Young, a director at DeNA and the CEO of Ngmoco, the mobile-gaming network the company acquired in 2010 for up to $403 million.
In another promising bit of news, DeNA said that it saw $10 million in Moba-coin consumption in July from the Western-facing side of its mobile gaming platform Mobage. In an effort to keep growing beyond their relatively saturated home markets of Japan, both DeNA and GREE have made an aggressive push toward luring in Western audiences with splashy acquisitions of U.S.-gaming startups like Ngmoco, OpenFeint and Funzio. Young said Mobage now has 45 million registered users, although he didn’t share daily or monthly actives. Zynga has at least 33 million daily active users on mobile.
Fueling that growth in Western revenues was a trading card title called Rage of Bahamut, which sat on Google Play’s top-grossing charts for 17 weeks. Some other mid or hard-core titles like Blood Brothers are also attracted average revenue per daily active users of about $1.
DeNA’s shares were unchanged on the news at 1,810 yen, giving the company a market capitalization of $3.29 billion. Like Zynga and every other contemporary, freemium gaming counterpart DeNA has, everyone’s valuations are down significantly from the beginning of the year. DeNA shares are down only 21.6 percent from the beginning of the year, however. DeNA said for the next quarter it expects to see revenue up by 40 percent year-over-year to $1.24 billion and profit up by a similar ratio to $272.4 million.
“The challenge for us is to prove to the investor community that our market cap has been limited by speculation on the Japanese market,” Young said.
He added, “To be successful, gaming companies need to be 1) global 2) prove they can monetize and 3) be on mobile. DeNA is well-positioned in that regard.”
De–Leveraging
In the banking world, when you borrow too much money and you fail, you go through a period of de-leveraging. It is a painful process.
Our worldwide economy is about five years into a de-leveraging process. Many of us lost jobs, or took a beating on home values, all part of a de-leveraging process. It stinks.
This happens in our world, too. You can tell by looking at a profit and loss statement.
Here’s a summary of a reasonably healthy profit and loss statement.
- Net Sales = $50,000,000.
- Ad Cost = $5,000,000.
- EBITDA = $6,000,000.
- Ad to Sales Ratio = 10%.
- Net Sales = $53,000,000.
- Ad Cost = $8,000,000.
- EBITDA = $5,000,000.
- Ad to Sales Ratio = 15%.
- Net Sales = $55,000,000.
- Ad Cost = $10,000,000.
- EBITDA = $3,000,000.
- Ad to Sales Ratio = 18%.
- Net Sales = $35,000,000.
- Ad Cost = $5,000,000.
- EBITDA = $3,500,000.
- Ad to Sales Ratio = 14%.
- Nearly $20,000,000 of sales is being generated for no benefit whatsoever. Why generate sales that don’t produce short-term or long-term profit? Be honest.
- What could you be doing with the $5,000,000 of ad cost that is not generating any profit whatsoever?
P.S.: I cannot tell you how often I run into the “$20,000,000 demand and $0 profit” problem. It’s everywhere. Your paid search people cause this problem, and your catalog circulation people cause this problem. You mail so close to break-even or by paying for clicks right around break-even. Now, I get it, you’re theorizing that the long-term value of these decisions pay for themselves. That may be true. But what the heck else could you be doing with that money? You could practically start a new business! But nobody wants to lose $20,000,000 of demand that generates $0 profit. And I know, you’re going to start leaving comments with MBA theory about why this is a good decision. We can agree to disagree.
Facebook Gives App Developers a Boost with Subscriptions and Mobile Ads
Facebook has announced beta tests on two new options that will help app developers raise their profit margin.
First up is Mobile Ads for Apps. Finding a way to monetize Facebook Mobile has been a problem but this sounds like the perfect solution.
This new ad unit takes advantage of the natural connection between mobile and apps. Facebook users will see an ad with a list of suggested apps. Click through and you’re taken directly to the App Store or Google Play where you can download the app instantly.
The app dashboard allows you to target users based on region, age and gender. Set your budget and go.
Currently, the ads are only available to select partners but you can sign up to be a beta tester right here.
Facebook Subscriptions
Today, Facebook opened up subscriptions to all app developers. The system allows the app to charge a recurring fee for in-app services. For example, Gardens of Time subscribers will receive 70 Gold points, an exclusive virtual item, expanded energy meter, bonus time crystals and an ad-free experience, all for $15 a month.
This is an excellent option that should help lift the monthly spend on virtual goods. Payments can be made by credit card or Paypal in a variety of local currencies.
I’m not a big fan of Facebook advertising, but I think both of these options are worth looking into if you’re an app developer. The mobile ad unit is such a natural and intuitive link, I simply can’t see any bad there. As for subscriptions, it’s the perfect way to balance out the monthly cash flow. For gamers, it’s a one time decision to spend instead of dozens of decisions every time they play and once they’re in, they’ll stay in as long as they keep getting the goods.
Facebook, today, I tip my hat to you. Good job.
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Program teaches graffiti vandals how to harness their talent and make money
Virtual graffiti software such as YrWall is one way to provide urban artists with an outlet for their talent without vandalising people’s property. Similarly, California-based Streetcraft LA is an outreach project that aims to help youths divert their creative impulses into products that could earn them a profit instead of a trip to the police station.
The organization operates in the low-income area of Wilmington, where a type of graffiti known as tagging has become a problem. Streetcraft LA hopes to encourage youngsters who commit this type of vandalism to use their artistic talent in ways that won’t land them in jail – which could further affect their opportunities later in life. Instead, the initiative is offering kids the skills and facilities to put their art onto products such as t-shirts, skateboards and even furniture, which are then sold in the Streetcraft store. Profit from each item sold is then split between the organization and its young creators. Artists on the program are also helped in devising their own marketing strategies, helping them to continue to sell their goods once they graduate.
Streetcraft LA is a social enterprise that helps young people see worth in their own talent, saving them from the risk of obtaining criminal records and offering real monetary rewards for their efforts. Graffiti is a world-wide problem, so is this one to emulate in your community?
Website: www.streetcraftla.com
Contact: streetcraftla@gmail.com
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The Power Of Brand Values Alignment
Our research over the past twelve years has shown that brands whose values align with their customers’ values have much stronger brand equity as measured by brand preference, loyalty and emotional connection. I recently read Jim Stengel’s book, Grow: How Ideals Power Growth and Profit at the World’s Greatest Companies. He has come to a similar conclusion after researching 50,000 brands in conjunction with Millward Brown Optimor.
So here is what we have found. Brands that have achieved an uncommon level of success:
- Know who their advocates are and what motivates them. That is, they have deep insight into their most passionate customers.
- Stand for something important to these customers.
- Embrace values that are important to their customers. That is, they and their customers share a common set of values.
- Hire, manage and empower employees based on these values.
- Consistently live these values each and every day.
- Serve as self-expressive vehicles for their customers. That is, the brands become “badges” of customer attitudes, interests and values.
- Strive to create an outstanding customer experience.
- Innovate.
- Care about aesthetics.
- Co-create their offerings with customers.
Consider these brands as examples of this:
- Apple
- BMW
- FootJoy
- Fox News
- Method
- National Public Radio
- Patagonia
- Seventh Generation
- Stonyfield Farm
- Southwest Airlines
- Trader Joes
- Wegmans
Here is the irony – if your brand’s decisions are driven primarily by customer values alignment rather than financial considerations, it will achieve well above average financial results. A balanced scorecard is a must. Most purchase decisions are emotion-based and people often choose and feel best about brands whose values align with their values.
Sponsored By: The Brand Positioning Workshop
Dear Catalog CEOs: Profit Factor
Dear Catalog CEOs:
Have you recently looked at how your profit and loss statement evolved over the past decade?
I look at a metric called “profit factor”. It’s the rate, excluding marketing expense, that demand (what a customer wants) flows-through to variable profit (before fixed costs).
Here’s an example, comparing 2012 to 2002:
In 2002, we weren’t as good at fulfilling merchandise. We’re far better at doing that today.
In 2012, we’ve artificially inflated our gross margins, and we give the gross margin back via discounts and free shipping. In response to folks like Amazon or Zappos (now the same company), we either increased prices and gave discounts/free-ship, or we kept prices flat, cut expense out of the product, and then gave discounts/free-ship.
Finally, costs have come out of the distribution center. It costs less, today, to pick/pack/ship merchandise than it did ten years ago.
In 2002, 39.8% of demand flowed-through to variable profit.
In 2012, 43.0% of demand flows-through to profit.
Also look at that fixed costs line. I increasingly observe that the fixed costs to run a business have actually increased. I know, this sounds contrary to what you popularly hear, but that’s what I am seeing. I don’t have a handle on it. In some cases, increased technology costs seem to get passed into the fixed cost line.
But when it comes to the profit factor, there are significant ramifications to improved profit factors.
For instance, in 2002, a marginal customer generated $2.00 per catalog.
- Profit = $2.00 * 0.398 – $0.80 (book cost) = Break-Even.
- Profit = $1.84 * 0.43 – $0.80 = Break-Even.
The difficult challenge of media alignment
Viewers are not the customer of the TV networks—advertisers are.
For a long time, those two groups had similar goals, though. Advertisers wanted lots of viewers and viewers wanted shows that lots of them wanted to watch. So the TV networks used ratings as a proxy for advertiser happiness and there wasn’t much of a problem.
The same thing was true for newspapers. More local readers meant local advertisers were happy.
Both newspapers and TV networks suffer when mass starts to disappear. Viewers seek out what they want to watch, as opposed to what the masses want, and advertisers are left to scramble for eyeballs.
HBO turns this upside down. The viewers ARE the customer. HBO can program with confidence, because there’s no question about who they are working for.
Search engine advertising works because the search engine knows the searcher is going to leave the site no matter what. They don’t care if you leave to click on an organic link or a paid one, as long as you come back often. And the advertiser is paying by the click, so he cares about having the right people click, not everyone. Fairly aligned goals among all three parties.
Which leads to the conundrum faced by Twitter as they try to monetize sufficiently to justify the expectations of their investors.
If they relentlessly sell the attention of their users, they will have a misalignment as they maximize profit. The advertisers will want ever more attention, and the users will want to avoid those interruptions the advertisers are paying for. Tension will keep rising as users, who feel trapped by a medium with few substitutes that begins to charge an ever higher tax in the form of attention wasted.
My suggestion: Twitter has the opportunity to become extraordinarily aligned with their best users. Offer the top users the opportunity to pay $10 a month. For that fee, they can get an ever-growing list of features, including analytics, verification, 160 characters, who knows…
10,000,000 users choosing to pay $10 a month means that the service turns a profit (!) of more than a billion dollars a year. And because the company is in alignment with their most powerful and evangelical users, that number grows over time. Every decision proposed will have to answer just one question: what makes our users happier?
Free is a great idea, until free leads to a conflict between those contributing attention and those contributing cash.
The Catalog Analytics Challenge
You think you know a little something about catalog marketing and analytics? Take this quiz, and find out for yourself. You may just find out that you’re the best qualified candidate for a job at a major retail brand!
Question #1: You mailed a catalog to 1,000,000 households, and generated $4,000,000 in sales. Your CFO wants to “grow the brand”. She asks you what would have happened if you had mailed 1,333,333 households. If you mailed 1,333,333 households, what is the total amount of net sales you would have generated?
- $4,618,744.
- $5,333,333.
- $6,000,000.
- $4,618,744.
- $5,333,333.
- $6,000,000.
- $115.
- $160.
- $165.
- Measure total sales generated at your call center.
- Match back all online orders generated by customers mailed the catalog over a three week period of time to the catalog you mailed, sum those orders to call center orders attributed to the keycode on the back of the catalog.
- Execute a mail/holdout test, subtracting the difference between the mailed group and the holdout group.
- $250,000.
- $600,000.
- $3,000,000.
- $16.00.
- $25.86.
- $28.00.
- Yes.
- No.
- $6.00.
- $9.00.
- $10.00.
- Yes.
- No.
- A non-promotional strategy.
- A promotional strategy.
- 800,000.
- 1,200,000.
- 1,400,000.
- 1,300,000.
- 1,400,000.
- 1,500,000.
- 1,600,000.
- $36.27.
- $40.18.
- $43.33.
- Question #1 = 1. You use the square root rule to approximate sales.
- Question #2 = 1. You can also use the square root rule to approximate sales here!
- Question #3 = 1. AOV is unlikely to increase significantly with more pages, given the online AOV.
- Question #4 = 3. Mail/Holdout tests consistently deliver better results than those generated by matchback algorithms.
- Question #5 = $600,000: $4,000,000 * 0.40 – $1,000,000.
- Question #6 = 2. There will be cannibalization, meaning that you can’t assume that the fourth catalog will generate what the first three catalogs generate. That rules out answer three. Answer one makes no sense whatsoever, leaving only answer two as a reasonable answer.
- Question #7 = 1, Yes. (0.02*100*0.4 – $1.00)/(0.02) = Lose $10 up-front, generate $15 profit in the next year, net = +$5.00.
- Question #8 = 3 … You lose $10.00 up-front (see Question #7 above).
- Question #9 = 2 … No, your business is not a failure. The repurchase rate is irrelevant. Customer loyalty is irrelevant, it’s your management of customer loyalty that matters most. If your catalog business is generating 15% EBITDA, you are a highly successful business leader.
- Question #10 = 1 … the non-promotional strategy is far more profitable … non-promotional = (0.05*100*0.4 – 1.00 = 1.00 profit) … promotional strategy = (0.06*110*0.4 – 1.00 – 0.06*110*0.20 = 0.32 profit).
- Question #11 = 3 … you need 1,400,000 new+reactivated buyers. Work backwards. You need 2,200,000 to satisfy your CFO. You have 2,000,000 twelve-month buyers who repurchase at a 40% rate, meaning that 800,000 will purchase again. 2,200,000 – 800,000 = 1,400,000.
- Question #12 = 1 … you need 1,300,000 new+reactivated buyers. Work backwards. You need 2,200,000 to satisfy your CFO. You have 2,000,000 twelve-month buyers who repurchase at a 45% rate, meaning that 900,000 will repurchase again. 2,200,000 – 900,000 = 1,300,000.
- Question #13 = 3 … 130 / 3 = 43.33.
