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How much is that one additional unit worth?

By: Dave Berkus

 

Conversion Rate Optimization - Modern Line Style Illustration with Doodle Design Elements. Conversion Rate Optimization - Business Concept with Doodle Icons Around on the Brick Wall Background. 3D.

Let’s use break-even 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?

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 break-even 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.

Published: July 15, 2020
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Source: Berkonomics

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Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

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