April 5, 2017, posted by iq
Ad Math: Calculating Promotion Profit
Many of our clients run promotions throughout the year to jumpstart sales during key periods. The hope is that, beyond short terms sales, these new customers become long-term customers.
However, the bad thing about promotions is that while sales may spike in the short-term, your profit margin will decrease. Additionally, depending on how frequently you run promotions, you may be training customers to wait until there’s a discount – which is a hard trap to climb back out of.
So because of all this, it’s important to understand the profit that results from your promotions.
What’s interesting about running this calculation for promotion profit is that it separates baseline sales – or what sales were expected in a normal week – from promotional sales. So if your calculation shows a positive outcome then the promotion can go forward. If it were negative, you’re losing money and it’s a bad promotion.
Beyond price considerations, knowing your promotion profit will help you gauge the psychological impact that a promotion has on your audience since a promotion typically results in a change in your baseline sales number.
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