Category: Profit

Optimizing the Margin

I was on a call with a client yesterday and asked them what impacts their revenue the most?

They have a new website that they’re feeding over 1.5 million visitors to a month and monetizing that traffic through advertising. There are a bunch of technical levers that we could pull to increase ad impressions: improve site speed, optimize the mobile ad display, work on pages per visit, and etc. But while we were going through these, they mentioned that they’re sourcing advertisers through a reseller that takes a 30% cut.

30% is a huge bite of revenue.

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Swinging Between Revenue & Profit

One of my key objectives in our six week execution cycle is to relaunch another iteration of a PPC campaign. We’ve been adding people to the team and capacity has exceeded demand. Because of this, capturing more of the market has been critical.

In the background though, one of our clients was acquired and transitioned into a chief marketing role in the purchasing organization. She recently told me that she’s replacing that organization’s agency of record with us. This will more than double the considerable work we were doing for her before.

Now, the focus has shifted to maximizing our team’s productivity.

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Big Profit in Tiny Operations

“That guy is making more money than he ever has,” my dad said.

I was home, on the family farm, visiting my folks and getting caught up the local events. A farmer from a nearby town came up in conversation and I asked how he was doing.

“Oh yeah?” I asked, “What’s different?”

My dad told me that this farmer used to run an operation with twenty to thirty “hired hands” working a large swath of acres. Now, on the verge of retirement, the farmer had collapsed the operation down into just a handful of fields, a select few crops, and one hired man.

He shrunk his team and grew his profit.

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Reformulating to Drive Profit

“Your customers don’t care about this- look, even your headline says so,” Chris told me. Chris Lema is a WordPress business coach I hired to help work on our organizational structure. The headline on our homepage read, “Stop stressing and free yourself up to focus on what you do best.”

Chris was making the point that our focus on support as a service wasn’t the highest value application of our team. Customers only bought it because they had to. They didn’t care about support, except for in a few moments of pain. They wanted to move on and focus on things that they did care about. Things that were valuable.

When you want to grow your business, you have to figure out how to generate more profit to sustain growth.

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The Money on The Table

What is better: making a sale worth $5 or making one worth $5,000,000?

Got your answer?

If it’s $5 or $5,000,000 it’s wrong.  The correct answer is:

It depends on how much it costs you to fulfill the sale.

If it costs you $.25 to fulfill the $5 purchase and $6,000,000 to fulfill the $5,000,000 purchase then you should snap up the small money and run from the million dollar “opportunity.”

Logically, we know this.  It’s a “no duh” answer.  That’s how profit works: revenue – COGS = gross margin.

However, in practice, we tend to be blind to the cost of opportunities and fixate on the upside.  

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