The Other Success Indicator

“Increase my sales immediately!” is the cry we all hear so often from advertisers. Is it that a sales increase is the only, or even the preferred method to measure an advertising campaign?

Is there no other way to create financial success for a television advertiser?

Of course there is. It’s Profit increases.

How many companies constantly search out the next sales increase only to report a poor financial “net margin” performance 12 months later? Perhaps it’s time to discuss some of the basic points about how to market a business for an increase in profit as the success metric, and not just for a sales increase.

In our experience, most clients are already generating adequate sales volume based on their overall investment. But what we most often see these that their expenses are simply too high in relationship to the amount of their sales volume. This can be a symptom of a broken advertising plan and if so it’s important to fix the advertising plan before we can expect to generate a significant return over the prior year.

We’re also assuming here that the company leadership is interested in the profitability of the company and that they are not compensated simply on sales increases. Since most companies in America are privately held this is true in most cases.

That being said, if a company is most interested in making money, then profitability should be a priority target over sales increases since sales increases also bring along increased expense.

The best way to start this analysis is to examine the clients’ industry profitability averages. Most trade industry magazines or organizations publish this type of information. Another way to get accurate information is to poll several other noncompetitive clients in the same field. You will soon begin to see some predictable averages of industry profitability.

Next, compare your clients’ profitability average with that of his top five competitors in the selected market. This data use often available through vendors or financial partners. It’s a simple step that may reveal a substantial opportunity for profit gain. For example, if your client is the lowest in profitability of the five. Then it’s going to be relatively simple to generate a profit increase with a better designed advertising plan. In contrast, if your client is first in profitability than another success metric should be applied. Usually this involves market share increase.

So to begin, how does your media choice affect your profitability?

One of the great advantages of broadcast television is its very low CPM (cost per thousand viewers) delivery of audience. Simply bringing a retailer into television advertising can generate an immediate increase in business profitability because you already succeeded in bringing more prospects to the door at a lower cost per prospect.

But we need to go deeper into a marketing plan design to target a profit increase.

Merchandise selection is a key component to be discussed in the design of a advertising plan. Some clients may try to convince you to feature their slowmoving products in their TV commercial as a way of clearing it off the shelves. Try to convince the client and is in his or her best interests to instead feature widely popular merchandise since this will be the traffic driver for the entire campaign. It makes no sense to put the slowest moving product in front of tens of thousands of viewers since they will now judge your clients business based on this impression of merchandise.

Pricing and product has a lot to do with the success of the campaign as well.

Some high-end advertisers will want to avoid advertising lower prices out of concern that they will generate an unqualified consumer. Most often this concerned is unwarranted since today American consumers will cross-shop 3 to 5 different retailers within a product category. This is especially true in fashion orientated products like furniture, apparel, homes, and home-improvement. A high-end advertiser that refuses to demonstrate their affordability to a mass client base is limiting their profitability since many of these will be first-time customers that can be generated at a much lower cost per thousand.

Lastly, the television program selection is the final step in building a profitable television marketing plan. Choosing programs based on audience psychographic composition, household income levels, lifestyle and brand orientation, and finally the cost per thousand of the television program are all equally important. You may find just as much profit success using an early-morning news television show as you will with substantial primetime programming. Of course all of these decisions are taken in a case-by-case basis. There is no such thing as a standard television marketing plan.

Final note: Helping a client achieve a profit increase has a dramatic effect since it can take a substantial sales increase to generate a small increase in profitability. This said, it makes sense to view this proposition in reverse mode and target of profitability increase first. Only after the net profitability of the company has improved doesn’t make sense to go after a significant sales increase.

My view of business goes this way, first help business owner to examine their operating systems much more closely since the sales increase will put stress on these systems quickly. These systems include but are not limited to their sales staff, their display, computer software, registers, and overall staffing levels.

I hate to admit it, but I’ve seen businesses insist that they target major store traffic increases only to get it… and then suffer the consequences of poor preparation! Case in point: one business generated a 50% traffic increase and saw sales decline 2% because they were not able to help customers coming into the store quickly enough in the overcrowded store was avoided by high-end shoppers.

So next time your client insists on a major traffic increase, consider a profit discussion first. It may be the best recommendation you could make.

Happy Profiteering!

Adam Armbruster is a partner in the retail and broadcasting consulting firm Eckstein, Summers, Armbruster & Company located in Red Bank, New Jersey.

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