Let us take the examples of two companies – one which is already profitable (Company A) and another which is not (Company B). The likely difference between the two will be on their marketing spends. The idea discussed in this series will achieve twin objectives: grow revenues by 20% and reduce marketing spends by 30%. What is the impact this will have on the profitability of the companies?
|Company A||Company B|
|Gross Margin (40%)||40||48||40||48|
|Profit (GM – Costs)||10||21||-10||7|
Revenues increase because brands are engaging better with their existing customers. If open rates in emails go up from 10% to something substantially higher, there will be a knock-on effect on web/app traffic and transactions. If the experience of Best customers improves with the availability of more customer data, they will spend more. If the customer journey of Rest customers becomes better, their spends will also be higher. If more Test customers (inactives) start engaging, there will be revenues coming in from them also. As Atomic Rewards work their magic, the discounts needed to drive transactions will decrease. Taken together, marketers now have many more levers to grow revenue. Thus, a 20% increase in revenue is a reasonable estimate. In reality, it can be much higher.
Marketing costs decrease because adwaste is being cut. The spends on reacquisition and wrong acquisition will be substantially reduced. Marketers will not have to pay the CAC rent to the adtech platforms. Success with referral marketing via Best customers will beget more Best customers, further cutting the ad spends. In this context, a 30% reduction is a fair estimate, even after assuming that martech budgets will rise – which is a good thing because it is money being spent on creating better relationships with existing customers.
The outcome: Company A has doubled profits, while Company B has swung from deep losses to a respectable profit. This is the power of Email 2.0 (along with Martech 2.0 and Adtech 2.0).
The takeaway: CEOs have to look hard at marketing costs if they are to get on a path to profitability. Just dumping money on new customer acquisition is not going to cut it. Growth has to come from existing customers. Smart CEOs are realising this. A recent headline in Wall Street Journal: “JCPenney’s CEO Is Done Chasing New Customers. ‘We Are Loving Those Who Love Us.’” And a quote from Gaurav Munjal, Unacdemy CEO, as quoted in Morning Context: “I can say we will do 200% growth, but then I’d have to burn a lot of cash. I don’t want to burn that much. When we were setting our goals for this year, the top was the path to profitability … We want to consolidate and make a more sustainable business. And then the market is becoming tricky too. And it is not just edtech. Tech stocks across the world are facing the heat. Until two-three years ago, the markets were rewarding growth over profitability. Today, there is a renewed focus on profitability.”
Email 2.0 and its allies Martech 2.0 and Adtech 2.0 are the keys that open the doors to the kingdom of profitability.