Profit Impact Marketing Strategies

Profit Impact marketing strategies (Pro-IMS) - I will summarize the most important factors that I have gone in to developing  profit-impact marketing strategies that you can use it to develop your own system of  monitoring profitability of marketing strategies implemented.

  1. Concept of ROI (Return on Investment) or ROE (Return on Equity) is very important – it is a measure how much have you invested in your business and the profit that you are earning from it. For example if your investment is $10,000 and your ROE is 10% it means that your profit for that year is $1,000. What should the ROE be for your business? - check publicly available statistics or trade associations and always try to achieve the highest possible ROE - this will motivate you to aim high.

  2. In this model (it's called Pro-IMS) I have used marketing channel as the basis of determining market strategy profitability but you can replace this with whatever suits your particular industry.

  3. The potential market is the total demand that there is for your product or service - identify the size of the market through market research. If you are catering to a smaller segment of the market (also known as a niche player) you should be careful that you do not overestimate the size of the market, since this adversely affects your ability to convert sales leads. The poor sales conversion is due to lack of focus on your niche customer requirement or not catering to a particular niche requirement..

  4. Once potential market has been recognized ensure that all sales leads are being logged as this provides invaluable information on customer wants. Also ensure that leads are being generate cost effectively.

  5. Sales leads conversion ratio (how many real sales are made from sales leads) needs to be checked continuously and reason for any decline in lead conversion needs to be explained early.

  6. All attempts should be made to increase average sale value per customer for this item alone a separate market and sales tactic needs to be formulated.

  7. There is a technical point that the Pro-IMS hinges on is the sales mix among channels/ strategies is based on contribution cost ratio of each. A larger portion of sales effort is directed at the channel/ strategy with a better contribution cost ratio.

  8. The chief advantage of the Pro-IMS model is that you are able to achieve target ROE at a lower than target sales level - which is a lower risk strategy.

It is crucial that the following ratios be assessed monthly/ weekly:

  • Sales leads/ Potential market - if the leads are low then advertising/marketing campaigns need to be reassessed or the potential market needs to be re-evaluated (especially if it is a niche market)

  • Marketing & Selling cost/ Sales leads - is your marketing campaign cost effective?

  • Marketing & Selling cost/ Sales - this could also be used as a means of measuring the selling effort.

  • Sales/ Sales Lead - If this ratio is low then selling techniques need to be reviewed carefully. It might also be a problem with the selling proposition - does it meet the requirement of the (niche) market.

  • Actual Average Sale/ Required Average Sale

The Pro-IMS system has been graphically illustrated in the diagram below:


Some things to keep in mind in implementing your marketing strategies:

  1. Be Careful of the high cost of inventory - in attempting to increase sales, inventory levels invariably increase, this reduces your profitability.

  2.  High interest cost of debtors - level of debtors will increase if more sales are made on credit - think 'outside the box' on ways of making more cash sales.

  3.  High cost of funds - cost of borrowing increases as more funds are required.

  4.  Product mix - selling more of a low profit product will bring down overall profits - so check product profitability

  5.  Customer mix - service only 'profitable' customers - look at our CRM articles for more pointer on this..

  6.  High salary cost of employees - maybe outsourcing or automation is an option.

It should be noted that most companies that try to increase there sales also increase their overheads resulting in lower profits.

 Profit impact marketing template is a measure to ensure that sales are increased without affecting overheads/ costs.

The Excel workbook that can be used as a guide for Pro-IMS and the steps that can be used is given below: 

  1.  Calculate the current ROE of the business.

  2. Set a target ROE to be achieved.

  3. Identify the new profit that should be achieved to get to the target ROE. What should be your target ROE? The best target ROE will be the highest for your industry (you might have to do some research) and benchmark against the best!.

  4.  From the profit figure calculated in (3) above work out the sales that should be achieved.

  5.  Now that you know the new sales figure that should be achieved (for target ROE) devise marketing campaign to hit new sales target

  6. To control costs of marketing campaigns use the ‘Profit Impact Marketing Template’.

  7. Use instructions given in the profit-impact.doc file to fill out the Pro-IMS Excel file

Click the link here to look at the Pro-IMS Excel model

For a detailed e-booklet and Excel model on how