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.