All businesses start with specific goals. In most cases, this is a benefit. Even if the main driver of a non-profit organization or business is personal goals such as being able to work more flexibly or spend more time with family, sustainability almost always requires income. Entrepreneurship can provide all kinds of freedom of commitment, but in order to succeed, we need to start with knowing what to measure and actively understand the finance of enterprises. Peter Drucker, a management consultant, said, \
1. Gross profit margin gross profit margin gross profit margin is \
Compare with the scheme with a total profit of 50%. To achieve the same total profit, you only need to sell products worth $20000. This business model does not rely on the same batch sales to generate revenue. You will also find that running a $20000 project requires less time and other costs than a $100000 project. This also shows how much harm the persistence of earnings, rather than profitability, will do to the business. I don’t deny telling my friends that it’s a mood to do a 6, 7 or 8-digit career based on income. But maybe you work 80 hours a week to achieve this goal. It’s not profitable and doesn’t pay a salary of market value.
Compared with profitability, the persistence of revenue will damage the business. Here are some tips to help you better understand and summarize the total profit gap. Investment inventory tracking. Inventory cost is the main driver used by cogs to calculate the gross profit margin of sales. If the inventory cost is how much and there is no reliable information related to sales, start from an unstable basis. As detailed as possible. Find all variable expenses directly related to sales and include them in the calculation. If possible, including transportation, import and manufacturing costs and packaging and transportation costs. The more accurate cogs calculation is, the better insight can be obtained. 2. Customer assurance fee (CAC) customer assurance fee is the average amount spent to secure new customers (i.e. convince customers and buy from you).
The following is the simplest way to calculate CAC: As with the calculation of total profit, CAC calculation means carefully investigating expenses and looking for all expenses related to marketing. Here are some common costs for most e-commerce businesses: Together with offline advertising spending, Facebook advertising or Google AdWords paid advertising. Software such as email marketing solutions and pop-up \/ boot capture tools. If you have any relationship with identifying and securing new customers, please include costs here. In the calculation of marketing specific geam member CAC, all or part of the salary can be allocated according to the time spent in marketing. Assume that the total marketing expenditure this month is $5000 and 500 new customers. That is, $10 for CAC.
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We will expand it, including the rapid measurement project. Assume that the average order value (AOV) is $100 and the total profit margin is 20%. This means that the average new customer is worth $20 to you. Based on a $10 CAC, the program ensures new customers in a profitable way and has a solid foundation to encourage customers to repeat purchases over time (which will improve customers’ lifetime value and profitability). Usually, enterprises will find that CAC is out of control and exceeds the total profit. For short-term and some products, you can use the loss leader strategy, but if you lose money for a long time and sell products, your business may be at risk.
This happened to Bento, an order food start-up with excellent sales growth. But with the increase of income, the loss is greater. With no gross profit margin or CAC, the business did not become stronger, but turned to the cliff at an alarming speed. Male startup listen to Bento’s story. If you understand the average appearance of CAC, there are two ways to further expand monitoring and insight. Male: CAC is calculated according to marketing \/ acquisition channels. Through this comparison, you can find more qualified customers, which helps to prioritize the location of marketing costs. To this end, you can split the total expenditure so that the customers you obtain can calculate the CAC of each marketing channel. Assuming that Facebook advertising and Google AdWords do this, CAC decides to be $5 and $20, respectively. It may be reasonable to stop the more expensive Google AdWords and invest more in Facebook advertising. Perform similar operations on a specific product or collection of products. This is particularly interesting when the total profit range of the product is large. This is because you can spend more for customers who get higher value products or very profitable products. This calculation also helps to implement the loss leader strategy, which is to actually lose money when selling some products in a way to attract customers, and then sell more profitable products upward. 3. The total profit of discount strategy and CAC are blocks built for formulating a good discount strategy. I often see e-commerce enterprises use aggressive and considerable discount strategies. But how it relates to their total profit and CAC is completely invisible.
Please consider the following options: The average order value (AOV) is $100. 30% gross profit set aside $30 gross profit for average orders. CAC is about $15, which means you can earn $15 (or about 15%) for every $100 order. If the discount exceeds 15%, the business may suffer a loss in the sales. Losses on some sales may not be a problem. When you do it with a loss leadership strategy, it can be very beneficial. However, only when you understand how the discount strategy looks compared to total profit and CAC can you know that it is in a safe space.
You can do something to help you better evaluate them. Review the maximum discount amount or percentage and determine how this relates to total profit and CAC. In the example above, the maximum discount threshold should be around 15%. Here, activities or promotions requiring a discount of more than 15% are the greatest risk (from the perspective of unsustainable loss), so they need to be investigated and reassessed. Understand discounts in terms of percentages. Depending on the correct activity being run, a fixed discount (such as a $20 discount) may be more reasonable than a percentage discount. When using a fixed amount discount, the percentage of AOV must be determined. So AOV
