Data Driven: Solving the P&L Puzzle
What are the key profit-and-loss (P&L) statement components of an online direct marketing campaign? The online P&L statement for a direct marketing company differs from a traditional financial business in several ways:
- Sales are measured through a two-step process for online direct marketing companies—tracking events that drive traffic to a website and then measuring conversion sales to website visitors.
- All expenses are separated by category (e.g., cancellations, creative expenses, promotional expenses, overhead expenses). So the marketer can apply benchmark ratios, such as cost to acquire a new client, lifetime value of a client and advertising spend to net sales dollars.
- Gross demand and net demand are used whenever possible for direct marketing online P&L, in order to accurately quantify cancellations.
The P&L statement is equally useful in measuring the overall financial viability of an online campaign, as well as measuring more traditional quarterly or annual performance ratios.
The chart (at right) shows a typical direct marketing online campaign P&L. For this example, the chart assumes no physical goods are sold, but rather a service. A P&L for a physical good would need to include COGS (cost of goods sold), shipping and warehousing costs.
→Online Paid Search: The two-step process of driving visitors to your website and then converting them into clients begins here. Traffic is generated through paid search campaigns.
• "Clickthrough Rate % (CTR)" is calculated by dividing "Clicks" into "Impressions"
• "Conversion Rate %" is "Orders" divided by "Clicks"
→ Gross Sales vs. Net Sales: Because cancellations are a metric that should be consistently monitored, marketers often show both gross sales and net sales. Gross sales represent total gross demand by clients for your services via your website. Cancellations are a reduction from gross sales. Net sales are demand after deducting cancellations. In order to accurately apply benchmark ratios, net sales are the starting point from which all other costs are figured.