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Knowing Your Promotional Costs

 

Do you know what it costs you to run each of your promotions? Again this is an area of great importance, because promotions are not always profitable ventures, however they are always laborious ventures! Let’s provide the example of running a 15% spring discount. Say if the calculation we used was that we have 3,000 clients in our database, we might fairly expect 3% of them to respond to the promotion; and we’ll assume they will spend twice the amount of our average ticket price, which will predict for us the revenue we might expect to generate from that particular campaign.

Example:

3,000 clients @ 3% response = 90 clients spending $120 each (2 x Average Ticket of $60), for total revenue of $10,800.

Cost Breakdown to generate $10,800 in revenue:

$5,400 50% Product costs (branded labels)
$1,080 10% Staff commission on sales (reduce?)
$1,620 15% Spring discount to client
$540 5% Promotional, shipping and miscellaneous costs
$8,640 Total Promotional Costs
$2,160 Gross Profit in dollars, or 20% Gross Profit Margin

 

If discount promotions don’t make you much profit, they should: increase your market share; improve your image; or generate awareness.

There may be other more beneficial ways to clear old stock and/or excite your customer, than discounting. When you consider that regular discounting may cause “price sensitivities” within your client base, you may want to reconsider doing this altogether. By this I mean that your customer may begin to feel that the regular price for the item is just too expensive anyways, and she will wait for what she feels is a more “reasonable” price to pay for that item when it is on discount. As well, discounting doesn’t do much to “impress” your client; provide them with a sense of importance; or increase future sales (unless a new product purchased at a discount successfully converts them to a regular user).

What if you were to use the stock items you would normally discount, as gifts to your new and existing clients? Or what if you were even to provide a gift-wrapped item to one of your client’s to give to their mother, friend or daughter on their special day? These alternatives provide a bit of a surprise or “zest” factor to the item, and to your business, and at the same time tell the client that they are important to you, and so are their friends and family. This may be a far more beneficial way to work towards future revenue increases, as well as client loyalty, retention and even new clients. You are receiving nothing in terms of a sales dollar for this item at the time, but you will end up receiving much more in the long run.

 

With our Spa Marketing Manual, as of today, you’ll never again settle for a

“match the competition” mentality! 

 

About Leslie

Spas2b Inc. is a full service Spa Development company, specializing in Online Spa Management Distance Learning Courses, Spa Business Manual Instant Downloads & Resources, and Spa Consulting Services.
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