Protecting your margin

It’s easy to get carried away designing the best offer you can do and ignoring the impact that this offer could have on your profit margin until it’s too late. For example many wine companies find that half price offers generate a great response rate but have also learnt that they need to protect their margin by making these types of offers conditional so that customers have to purchase at least one other product at full margin to get the ‘hot deal’.

A very useful tool that businesses can use to help protect their margin, is a weighted margin sheet. This is most relevant to those businesses who offer a range of similar products on a regular basis to their various audience segments i.e. vitamins, wine, general direct retail etc. With some analysis of past campaigns, these businesses have the opportunity to understand the performance of their campaigns down to a ‘product sold’ level by customer type and to identify a general trend.

Post analysis of past campaigns would involve identifying the total number of people communicated to, total number of products sold, total sales and margin dollars and then getting these totals broken down by actual product sold or if there’s too many products, perhaps by category. If this analysis was done across a number of communications, it’s likely that a trend would emerge that shows the % uptake by product which could then be used as an accurate indication of the uptake of a particular product or a similar offer in future campaigns.

From here, it’s a relatively simple process to set up a weighted margin excel spreadsheet for future communications. This spreadsheet would include the key performance targets of your campaign and would list each product offered.

Based on the knowledge gained from your previous analysis you can then go through the spreadsheet and plug in the estimate percentage uptake against each product. The weighted margin sheet would also include your conditional low-margin products to determine what the overall impact on your margin is likely to be.

If your margin ends up being too low, you may have to reconsider the conditional offer or alternatively add higher margin products into the communication to offset the lower margin products.

Incorporating conditional products are a great way to increase your average order value, sales and overall effectiveness of your campaign, whilst still keeping tabs on your profit margin.

Using a weighted margin sheet adds another dimension of forecasting to your campaign as you are considering behaviour right down to the product level. If for some reason your margin comes in higher or lower than you anticipated you can go back to your expected uptake by product and see if there’s one that performed better or worse than expected that could explain this variation.

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