Monday, August 27, 2012

6 factors that have the biggest impact on profit

As we've blogged about before, our overarching goal is to continually increase Stroll's profitability and contribute every possible cent to the company's bottom line. To that end, we've identified six factors that are most important to converting our advertising expenditure into maximum profit. These six factors form what we call our "Growth Acceleration Model." The factors are:
  1. New customer acquisition
  2. Conversion rate
  3. Average order value
  4. Repurchase rate
  5. Fixed costs
  6. Variable costs
Every member of our team understands this model, the factors that define it, and how it all impacts our profits. Armed with this knowledge, our team's collective brain power is focused on the most critical and influential leverage points in driving profits in our business.

When we developed our Growth Acceleration Model, we had two critical objectives:

1. We wanted a model that completely described the factors that drive profit.

2. Just as important, we wanted a model that was clear and concise, facilitating its communication throughout the enterprise.

It's the second objective that is most often overlooked by organizations and their analytical divisions. The transformative power of a model such as this one is found in its ability to empower the organization's most valuable resource -- its employees.

By distilling the model into a few clear factors, it becomes a tool that can be easily communicated and quickly assimilated by all employees. In a word, the model -- the idea -- sticks. Many marketers are already familiar with the concept of stickiness, particularly as it relates to ideas or emotions communicated in brand advertising.

Here at Stroll, we like to think about our internal sharing of analytically derived knowledge in the same way. It's not simply the content, but whether you can package or deliver it in a way that promotes its adoption and application by all team members.

So, after an exhaustive analysis of every aspect of our business, we've distilled our Growth Acceleration Model into the six most important factors that drive our profits. In this and future blog posts, I will discuss each factor focusing on how each affects our bottom line.

First up for today: new customer acquisition. The importance of new customer acquisition may be obvious. In a traditional retail environment, this factor can be equated to the principle of traffic. That is, getting shoppers -- the right kind of shoppers -- to come into your store.

Our marketing programs are the cornerstone of increasing our customer acquisition volume. We constantly track, measure, and analyze every marketing campaign by written copy, page layout, channel, offer, and incentive to identify incremental changes that unlock success.

Our goal is to gain customers who provide a lifetime value that maximizes profits for our company. In a prior post, we outlined three core steps you should include in your customer lifetime value calculation process.

Most companies don't focus their customer acquisition strategy this finely. Rather, companies often take a scattershot approach to acquiring a critical mass of customers, many of whom are inappropriate for their business and won't deliver a maximum return.

By institutionalizing a definitive customer acquisition plan with robust tracking, measurement, and careful analysis, companies can identify the factors that increase and the factors that suppress customer acquisitions -- a critical milestone in the optimization of their acquisition efforts.

I'll be back soon to unfold the second factor in Stroll's Six-Factor Growth Acceleration Model, conversion rate.

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