Profit and Loss
2009
In the business world, one would assume that the concept of profit and loss is basic and easy to understand. Not true. The idea of profit is laced with subtleties.
In marketing, you first come across this when you encounter one of the famous 5 P’s — namely Price. You’re taught about price points not in terms of profit, but in terms of consumer appeal — what price will the market bear?
Profit becomes muddied in the real marketing world when you start working with a motivated sales force — motivated to create commissions. This can include selling products at a loss, or selling products that don’t have the highest profit margins, meet current company goals, or match the true growth potential for the company. I have sat through many a sales meeting where reps received public accolades for sales that I knew had not yet helped the company turn a profit. I knew, because the sales revenue had not covered marketing costs or even taken them into consideration and those costs were high.
I’m now reading the book Free by Chris Anderson, a business writer well worth following from his original book The Long Tail to today’s best seller. In it, he writes: “People are making lots of money charging nothing.” How, you ask? Well, that is the paradox of free in today’s world. As he goes on to write while discussing an historical example: “Free didn’t mean profitless. It just meant that the route from product to revenue was indirect, something that would become enshrined in the retail playbook as the concept of “loss leader.”
The real problem with profit and loss is that we’ve relegated it to our accountants, who literally take a literal look at it. It’s one of the main reasons that marketing people have such a difficult “sell” with accountants, and a reason why businesses should be supported but never led by accountants. Profit and loss are not easy concepts, short-term concepts, or as obvious as black and white. Today’s loss is tomorrow’s potential best-seller — that is if the business has vision, goals, an understanding of the product and what it will take to bring it into the public conscious. And bringing a product into the public conscious — well, that’s true marketing!
Comment