The Australian Small Business Blog

Monday, August 24, 2020

Why it’s a Mistake to Use Turnover as the Measure of Marketing Success

When most small business owners are asked what they want to achieve with their marketing, the answer is almost always is “More Sales”. To increase their Turnover. But that answer is too simplistic and can result in sub optimal outcomes especially when looking at the bottomline results. And the bottomline is your Net Profit. 
There are three key reasons to focus on Net Profit rather than Turnover.

The first reason for a profit focus is not all of your products and services contribute equally to your bottomline. A focus just on Turnover doesn’t differentiate where your profit comes from and that means your marketing time and effort are not distributed to ensure that it delivers the biggest bang for the buck. In fact, you may be inadvertently just be increasing profitless turnover that does nothing for your bottomline and may even reduce it!

The second reason is that not all customers are the same. Clearly some are more profitable than others. The repeat buyers vs the one off purchasers, the referrers vs the defamers and the value shoppers vs the price shoppers aren’t all equal. This all becomes reflected in the cost per sale. Raw Turnover misses this. Net Profit doesn’t.

The third reason is a profit focus provides far more opportunities to directly improve your bottom line than a one-dimensional turnover focus. There are many components to profit including, Price, Volume, Cost of Goods, Cost of Sales plus much of your overhead has a profit impact. For example, staff training can improve your service and attract more buyers. In fact, almost every line item can have an impact.

When considering your marketing plan here are some steps to take:

1. Segment your services and have a separate marketing plan for each based on their profitability.
2. Similarly, segment you customers and have a marketing plan for each based on their profitability.
3. Review every line item in your Profit and Loss statement and consider the impact each of them could have on your marketing plan and profit.

If the bottomline is your net profit, why not focus on that instead of turnover?

Learn more about how to increase your bottomline with these zero cost trainings.

May Your Business Be –As You Plan it!

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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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