What’s More Important: Revenue or Profit?
The holiday season is coming to an end shortly. This season we saw a huge strategy shift from many of our clients. Last year, they were pushing top line revenue at the expense of margin.
Normally, many brands that we work with have a 50-70% margin on their products so it’s pretty healthy. Once you account for marketing costs, returns, G&A, CC fees etc., they end up around at a 10-12% net margin (for a few, that’s pretty healthy).
What brought this strategy change with many of them? They finally realized that discounting most if not all the time is not growing their business, it’s actually shrinking it. Now, that doesn’t mean that they shouldn’t offer promotions and discounts, they should. But it should be part of an overall strategy to achieve their goals.
We’re all habitual. Every brand wants loyal customers. If we continually keep our customers loyal because we’re offering great products during a promotion, then they’ll only shop when there is a promotion. I read this in a book a while back and it stuck with me. ‘if you sell Oz, customers are going to expect Oz’.
So what’s a brand to do?
Let’s face it. Fashion sells when it’s on sale. It’s how products are released and products sit at MSRP for a few weeks because the first markdown occurs. We know we’re going to sell a certain percentage of our inventory during the first markdown and the leftovers when we’re 40-50% off.
There are many ways to make the numbers work but here are a few ideas if you do or do not want to be promotion heavy:
– Price your products so that you hit margin when selling at markdown (this is pretty much done by almost everyone already).
– Don’t offer unlimited inventory. Be selective online. One example I saw was being selective on size assortment. For instance, if you know that a certain customer always orders a size 8 shoe, your message to that customer is ‘get it before we run out of size 8’.
– Continually remind customers that the hottest styles sell out first so they shouldn’t procrastinate.
2 of the 3 suggestions above are just samples but if you notice, we’re not talking about discount. We’re talking about ‘get it before it’s gone’.
Our experience with creating and executing customer acquisition strategies goes back 12 years. We’re sharing what works because we believe that if we don’t have a race to the bottom, we’re actually going to make a positive impact in many of our clients and their families lives.
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