How much is that one additional unit worth?

Most college econ courses teach marginal economics.  So, not to scare those who didn’t take econ, here is a simple explanation.

Let’s use breakeven as our test

Let’s say that your company is exactly at breakeven. Here’s the importance of that event and how it affects every productive move you make after that moment. There is amazing leverage in high gross profit margins once a company is past breakeven.  Every dollar of gross profit falls to the bottom line, increasing net profit faster with each transaction.

An example to make this clear

A ten percent increase in revenues for a company with 50% gross margin and 5% net profit before the increase would double net profit for the period with that ten percent increase in revenue.  That’s impressive sales leverage.  Just to be fair, a 5% cut in costs would also double net profit.

The point is that once your company is stable at or above the breakeven point, one incremental unit generates robust increases in net profit.

How does this work with online-based companies?

[Email readers, continue here…]  In an Internet-based business, power comes not just from high gross margins, but also from an increase in the percent of conversions.  Visit to purchase, click to close, or other terms are used in various industries to describe the measure of conversion rate from initial landing on a page displaying purchase information about a product or service.  No good Internet-based business fails to measure conversion rate carefully and experiment with photo placement, ad words, key descriptions, product positioning – all to increase conversion.

Still comfortable with direct mail?

Well, let’s start with direct mail is slow, costly, hard to measure, and impossible to change once the mailer has gone out.

And that’s why the major focus that used to be in the direct mail business to drive sales is now focused upon email marketing campaigns, social networking marketing, influencer marketing, and location-based sales using tools to recognize shoppers at the point of sale.

Back to the incremental unit

All these new tools are used to drive sales of the incremental unit, sales that would have been lost if not for the ability to recognize specific qualified buyers from within the general public.  Cheaper marketing cost – more targeted to a ready-to-buy audience, all toward driving incremental sales, has been made possible by the use of the Internet to seamlessly gather information and present offers at the right time to the right potential purchasers.

The purpose is to see that incremental unit

Which brings us back to our start.  Getting to breakeven, allows us to at least double our net profit with the next unit sold.  And that’s power!

Perhaps you should reach out and touch someone

If you are still worrying over what tools you need to reach your potential customer, perhaps this is the time to reach out to the new class of marketing professionals who understand how to capture and utilize targeted data and present products and services to a pre-qualified audience at the right time for increasing purchase decisions.

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1 Response to How much is that one additional unit worth?

  1. Bryce Ebeling says:

    The old adage, 50% of my marketing dollars are working, is absolutely true. The biggest question becomes which 50%, right?

    Google dropping their cookie in 18 months is a pending catastrophe for anyone caught unprepared.

    The biggest challenge facing online marketing experts is this exact thing. Identity Resolution is going to be a critical component of anyone’s marketing mix. Unfortunately, there are only 2 data companies (Axiom and Audience Acuity) that offer identity resolution solutions at an individual level and only 1 of those (Audience Acuity) actually offers a persistent PII Identifier to trace consumers from product through to purchase, across multiple channels and devices in and online/offline scenario.

    The ability to identify and resolve the identity of one’s anonymous web traffic (typically 90% of all web traffic) is also a new phenomena and will work without the Google Session cookie that is being eliminated in 18 months. All marketing professionals should be aware of the differences in Identity Resolution. Not all products are the same.

    For full disclosure (and no intent for this to be a cheap plug), we’ve integrated the Audience Acuity data set into our platform, and are the only company that isn’t a Fortune rated company to have a license to this data. Audience Acuity has the only Super Identity Graph on the market. I’m happy to make direct referrals to Audience Acuity if you already have the infrastructure to do something with the data once you have it, as well as maintain the necessary privacy and compliance standards required by law / regulation before engaging your target audiences with Email, Custom Social Media or Call Center.

    I apologize if this came off as a plug, the intent is only to help readers understand the peril of their marketing efforts are in, if they or their agencies don’t plan for the pending changes in 18 months.

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