Revenue For Vanity, Profit For Sanity: Optimising The Bottom Line For a New Financial Year
With the recent Easter break now already seeming like a distant memory, we’re right into the heart of another new financial year for many businesses. And although there are green shoots of a retail recovery plus inflation continuing to cool down, it’s likely to be a challenging 2024/25 for most of us.
At Entropy, we’re set up to constantly focus on the final P&L impact of all marketing and associated activity that we carry out, often looking to the classic mantra that “revenue is for vanity, profit is for sanity”, backed up by our MMM (marketing mix modelling) and measurement offering. And talking of measurement, we’re also a big fan of the phrase “what gets measured, gets done”.
So, as another unpredictable year starts, we’ve picked out 3 ways to help with measurability and driving effectiveness for any ecommerce focused business.
1. Mastering Your Overall Ecommerce P&L
A key first step to monitoring your operation is developing – and maintaining! – a robust ecommerce profit & loss (P&L) summary. Each operation and business will always have its own unique quirks to factor in, while working in partnership with your finance team to agree a P&L structure is always essential, but we find that using a simple customer funnel is a helpful way to develop an ecommerce P&L.
The diagram below shows how this works in its simplest form, and we’ve also developed a sample P&L template that’s available to download here, having helped countless ecommerce teams to do so over the years.
However, as well as building it initially, key to success with any P&L is how you then manage it ongoing. This isn’t just setting and review once a year or a formal process with Finance and other appropriate teams that may happen quarterly or monthly. Instead, there are a lot of factors that you need to be managing and optimising on a weekly and daily basis. And as customer focused marketers, it’s likely that a significant amount of your costs will be on marketing spend, so the increased costs of advertising online means that the need to optimise this is more important than ever.
2. Marketing Measurement – and MMM
To borrow a third (and final!) “classic” adage for this blog, I’m sure we’ve all heard the phrase “I know half the money I spend on advertising is wasted, I just don’t know which half”, generally attributed to U.S. department story magnate John Wanamaker. And although its origin story can be disputed, this is likely to date back to a speech made in 1919, so over 100 years ago now!
It’s fair to say that society has sped up considerably since then – and marketing measurement is currently undergoing significant change. For example, reliable digital attribution is no longer possible due to privacy interventions by Apple and restrictions on cookie availability.
Because of this, more and more brands are using Marketing Mix Modelling (also known as MMM or econometrics). It is a set of statistical analysis techniques applied to marketing or sales data to estimate the impact of various marketing activities. It is typically used to optimise the advertising mix and promotional tactics to increase ROI or incremental revenue.
3. Dynamic MMM
Continuing the theme of speed – and getting optimum bang for your buck – Entropy has pioneered MMM delivery so that is faster, cheaper and designed specifically for digitally or digital commerce focussed brands. We call this new approach Dynamic Marketing Mix Modelling – or DMMM.
How do you decide how much to invest in retail media driving sales on Amazon vs media driving direct to your website? Which is more cost-effective, Google PPC or Amazon Search, Facebook, or Amazon display?
Entropy DMMM (Dynamic Marketing Mix Modelling) offers a like for like, privacy safe, performance attribution solution. DMMM allows you to make the right investment decisions across your sales portfolio. Optimise your performance across both your website and Amazon based on the marketing gains you can achieve on each.
How Entropy Can Help
Entropy offers a range of strategic consulting, measurement and marketing services. For more information, please contact us or read about our work.
