Lately, I’ve been shifting hard from revenue-driven to profit-driven marketing strategies. In 2020-2021, many small businesses needed to focus on more of revenue – just to keep the doors open and break even on bills. They made heroic efforts, too – by maintaining customers if even they couldn’t pay right away, picking up customers at their home, delivering to them, or eliminating the least-used services. It was about surviving. As the economy turned around, you are now in the position to make important investments in building customer loyalty and boosting your profits. In other words, you can KEEP more of what you earn.
During the last three year journey, I’ve also noticed the large number of businesses that grapple with the difference between profit margin and price mark-up. They believe them to be the same. They use the terms synonymously. Some still do. And of course, they are not.
Why Strong Marketers Obsess About Profits
I encourage business owners to know if they are managing to a 7, 17, 27 or 40-something percent margin. Knowing those numbers helps inform your marketing strategy. To begin with, you may have 100 different kinds of products and services. So, which two or three are going to dominate your web page and sales conversations? Surely, not all of them!
Too many business owners think a profit margin is the same as price markup. No, I say. Two completely different financial calculations. Not knowing the difference means you’re either working too hard, or you’re ripping people off. I don’t recommend either!
A strategic marketing plan will identify both your ideal and your most profitable customers, services, or products – and the why behind it. After all, we want to design a plan that attracts those target buyers or clients to the services you most want to sell. My assumption is you want to market and sell the most PROFITABLE services. And just as important, I want to help you reduce your costs.
For example, it might be more efficient to have email marketing software reach 10,000 people versus you writing 200 emails at a time from your personal email factoring in your hourly labor rate. It’s the same for requesting online customer reviews, performance marketing analytics, search engine optimization (SEO) driven blog writing, content creation and more. I’ll help you find the fastest, most efficient software or martech (marketing technology) to help you keep your COGS down while say, increasing your 5-Star Online Reviews by 300 percent.
Margin versus Markup
Let’s take an example:
1. Profit Margin: To calculate your gross profit margin, subtract the Cost of Services or Goods Sold (COGS) from its sales price. Let’s say, it costs you $50 to make the product, but you sell it for $80. That means it has a margin of $30. More common is to express it as a percentage which is calculating margin by sales. Therefore, the margin is 37.5%. That’s a pretty good number, by the way. Many businesses like in construction, hair salons and others aren’t making profit at all – or it’s 2-7%. Not double digits. It might indicate that you could increase the price a little more AND decrease the $50 cost at the same time.
2. Price Mark Up: By contrast, markup is the difference between the product’s selling price ($80 in this case) and its cost price ($50). It’s looking at the same transaction but from a completely different angle. If the cost of the product was marked up by $30, expressed as a percentage you divide the mark up of $30 by the product cost of $50. So the markup percentage is 60%.
So profit margin is 30/80, while price mark up is 30/50 in the same example.
All of this relevant to marketers because a 60% markup might sound insane, or maybe not. It depends what your profit margin goals are. Which is why the cost calculation is so important. Here’s a hint: Markup percentage is higher than the margin percentage. It’s always the case. Here, the markup is 60% but the profit margin is 37.5%.
You need to know how much you are spending overall on each service or product you deliver AND that COGS is what truly matters to KEEPING more of what you earn.
Even if you earn a lot with a $80 sale, it still might not add up to much if your COGS suddenly increase from $50 to $61. Whether fixed cost (like your factory, office space rent, employee pay and benefits) or variable costs (like materials, fuel, advertising expenses) go up, they need to be factored in to get true profit picture. And in the end, you want to do more of the profitable work and less of the stuff that COSTS you more to deliver.
Buyer Personas - Not All the Same
Every customer is not created equal. Different buyers chiefly have different passion and pain points, habits, viewpoints, income, technology skills, ages, and more. It’s not just about where they live (geographic), but also how they feel, think and act (psychographic and technographic). Perhaps they use the same service, but for very different reasons. Perhaps they prefer Google Maps and Reviews over just walking in or word of mouth.
In my marketing plans, the focus is on engaging the more profitable customer segments and promoting those services far more (or even to the exclusion) than the low-margin ones. That doesn’t mean catering to the rich, famous or high-end luxury markets only. It means catering to a target audience who can bring in good, steady revenue at an overall lower cost to your business.
Compare a three-hour hair salon service to a 30-minute child’s haircut. The hair cut might help you KEEP more money if you’re not selling hair dye, foils, toners, and more. Or it could do the opposite by eating into your profits every time you give away the chair to kids, not leaving room for the working mom with dreams of going auburn, blonde or brunette!
You must choose your ideal customer – not “all people who want a haircut.” Then cater your services to them. The Brand Bunker will help you identify those customers and services, and tamp down on marketing the stuff that’s least relevant to them. Perhaps, it’s a light or latent customer – or a perfect stranger. A good marketing process will help you convert any of target buyers through a purchase funnel – from a lead, to a customer, to a fan or promoter of your business to other strangers.
Wal-Mart Profit Margins Hardly Move!
If you’re skeptical about how profit-driven marketing works, just look at professionally-managed companies, say Wal-Mart. During good times and bad, no matter what the external circumstance, war, government policy or pandemic, well-managed businesses manage their profit margins.
Look at Wal-Mart over the last 20 years – their profit margin barely moved despite ups and downs in the economy. About 2 percent.
What if you don’t sell products, but only services? Say, you’re a dog washer, insurance agent, financial advisor, mental health therapist, dermatologist, plastic surgeon or an interior designer? It’s the same calculation.
You will have a cost of doing business and you will still want to identify those services that bring in higher revenue combined with lower cost. Tell those stories. Post those photos! This coordinated effort helps you keep more of what you earn.
Don't Fill Up Your Schedule With Low Profit Work
It’s not just about filling up your schedule. You want to attract the “high profit margin” work – not just drive up your revenue and work hard, but blowing administrative costs out of the water.
On what products and services do you MAKE the most money? And, with low enough overhead that you can KEEP more of that money?
Does a solo mental health therapist keep more profits on Medicaid or privately insured patients? Which patient is hardest to acquire? Which ones create the most time-consuming paperwork and why? If you provide a service, that wasted time is costing you other billable hours.
Does an auto repair shop keep more money from a 2015 Chevy Silverado, 2020 Lexus SUV repair (and yes, please add Clear Bra*), or 1998 Subaru Outback repair job?
These are the types of questions I ask when designing a customized marketing plan that helps you achieve YOUR profit and purpose goals. With the extra money you keep, you can invest it back into the business, take out an insurance policy on your business, increase pay and benefit options for your best people (to keep them!), or take the bucket-list family vacation you’ve dreamed of.
Move from Survive to Thrive
That’s where small businesses need to move – beyond surviving and into thriving.
If you want a marketing and communications pro who can really help grow your top line – by acquiring new customers, launching new services, and expanding geographic brand relevance – let’s have that conversation. I know it’s a mindset change. But my clients who have worked with me on top-line revenue growth AND invested in a few affordable, automated marketing systems to save labor cost – are seeing the profit benefits. They can keep more of what they earn.
Let’s talk about how The Brand Bunker can help you craft a customized, integrated marketing strategy. Let’s tell the ideal stories, in the ideal channels, to your ideal customers, with the ideal services.
The I’ll show you how to get amazing 5-star online reviews with a little software spit and polish, too.
