When my sales grow, does my profit grow? See core relation between profitability and growth. Part 3/4

From economic terminology, I would like to use the term “marginal utility theory” here. It simply describes a development where each additional profit unit purchased is more expensive than the previous unit. In other words, you usually buy your most loyal (VIP) customers from the region of your business and for a significantly lower price than the remaining customers.

Visualization of marginal utility theory, source: https://xplaind.com/

Visualization of Pareto Principle

“So how do I know that I want to run my business towards profit rather than sales volume, or vice versa?”

The difficulty of answering this question is equivalent to the question: “What should I do to be happy in life?”. So, it’s nice to have someone you can consult about your plans, ask them such a challenging question and use their practical experience, but it’s important to realize that the final decision and especially the real work is 95% up to you. No one will gain happiness for you and no one will build your business for you. Your business (e-shop) is reflected a lot in your personality, dreams, and goals.

“Hmm, so I don’t know where to start now, it’s just getting complicated.”

Business plan

In my experience, the first step to a successful data-driven e-shop is a business plan. From dozens of different online businesses and hundreds to thousands of hours spent on business planning, we have gradually put together a template based on the free Google Sheets technology (freely available later in this article).

In our simple template, you can start managing your e-shop (in terms of technology, Google Sheets and spreadsheets are generally just the beginning of the journey and the know-how you have to go through).

Template for simple planning of operational and marketing investment of an e-shop

Basically, it is necessary to put together the company’s operating costs (salaries, rents, and other fixed items), marketing costs, and margin information (at least the overall average) in one place. You will get an overview of how many orders you need for your company to generate the required amount of cash flow at the end of the month (or fiscal period).

  • You can obtain more information about the process of planning investments not only in marketing from the webinar prepared for you by Ecommerce-academy.cz in cooperation with Shoptet.cz in 2019 (for Czech speakers you can see materials and video recording here).
  • Download the template for planning within Google Sheets here for free.
  • If you want to gain more practical experience on how to work with the template and how to approach the planning of marketing and operational investments of your e-shop, visit the training Data-driven marketing in practice” 

*Preview templates for e-shop investment planning

Author’s tip: When working with data, try (even if you’re at the very beginning and only have 10 orders a day) to work with scalable cloud technologies like Google Sheets, the general Google Cloud Platform, and other tools that you’ll read about in the next article / part 4. Always keep in mind: everything I do must be easily available for collaborative work online and ideally automated, otherwise the competition will overwhelm me. It is best to completely avoid locally stored Excel files and similar customs from times past. This “innovative” approach is more important (and simpler and cheaper) than it might seem at first glance. For me, one of the keys to the success of effective e-shop management or “every saved second of time counts”.

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