In this article, we will zero in on profitability vs revenue. Plus we will outline proven methods to ensure your email marketing campaign is profitable as your brand value grows.
Despite the fact that these two terms differ in their applications and measurements, both terms are often confused regardless of these differences.
Businesses and marketers need to track revenue and profitability in order to understand their performance, forecast effectively, and spend wisely among other key activities.
In the following section, we will take a closer look at profitability vs revenue and how to tell the difference when it comes to finding them.
Profitability vs Revenue
Profitability
This is a way to measure profit generally speaking, profitability helps you determine whether your business is profitable enough to survive, grow and flourish.
The profitability of your business measures its success or failure based on the profits it generates. However, this does not mean it is an absolute science.
The software instead focuses on what your business’s profits mean in the form of a percent or decimal figure. There are several different profitability ratios you can choose from.
A business’s profit is typically expressed as a net loss or profit whether you are in the positives or in the negatives, depending on how much money your business has left over after expenses are paid.
To figure out your company’s profit, follow this formula:
Total Revenue – Total Expenses = Profit
You can determine your profit or loss by looking at the bottom line of the income statement. If you are not seeing growth in your bottom line, you need to make some adjustments in your business.
You can have a profit without necessarily being a successful business and vice versa. There might be positive profits in your company that appear high, but they do not reflect the true economic condition of your company.
When you want to know whether your company’s profit figures reflect success or failure, you have to look at its profitability.
The following are three profitability ratios that can be used to measure the various aspects of a business’s success:
- Profit margin ratio
- Gross margin ratio
- Return on investment ratio
Revenue
Any income earned by a person or company from the sale of goods or services is revenue. In order to calculate a company’s profit on an income statement, expenses are deducted from its revenue.
A company’s revenue is often referred to as the “top line”. Since it appears at the very top of the income statement of a corporation. A company’s top line represents its revenue or gross sales for the year.
If a company experiences top-line growth, this means that it is selling a greater volume of products or services.
Almost every business seeks to increase revenue and lower expenses in order to generate maximum profitability. Which is shown as net income or on their income statement.
The consistent decline in revenues signifies a company’s decline. The more revenue a company generates, the more money it has to lower its expenses and generate a profit.
When operating any business, the ultimate objective should be to generate revenue as quickly and efficiently as possible. Also, keeping the cost of production or service as low as possible.
In order to calculate revenue, two components must be considered: the sales price and the number of units sold.
The average price of product x number of units sold = revenue
Instead of selling specific products, if the business offers services:
The average price of service x number of customers = revenue
Businesses generate revenue through their sales. After eliminating a company’s operating costs, debts, taxes, and other expenses, profit is what remains.
If you want to identify your business’s financial health and viability, you must have a consistent view of its revenue and profitability.
The effectiveness of your sales and marketing efforts, as well as the efficiency of your expenditures, can be gauged through both metrics.
Net Sales
A company’s net sales are a far more accurate reflection of its overall revenue. In addition to all sales a business makes, it accounts for three key factors that can influence the price of their products or services:
- Allotments – Discounts given to buyers for discovering and reporting defects in a product.
- Discounts – Price reductions offered by a seller in exchange for immediate or early payment from the buyer.
- Returns – Refunds that buyers receive when they return a product.
As a result, a company can get a clearer picture of its actual revenue after those elements are incorporated into its financial reporting.
You can calculate your net profit by subtracting the value of interest and taxes from your earnings before interest and taxes. A company’s final profit figure will reflect its profitability over a given period.
There’s a difference between revenue and profit that every business needs to understand. The two metrics have varying practical applications and consequences for your business’s success.
How To Enhance Your Company’s Profitability
With these five metrics in mind, you can tell if you need to adjust your email marketing campaign. So that the resources you invested are generating a positive ROI.
Here are five essential metrics you must monitor to produce successful email marketing:
Gross Profit Margin
Basically, it is the cost versus the purchase price of your product.
What will your product sell for if it costs you $45,000 to build it?
The reason it’s so critical for profitability is that whenever you send your customers an email offering discounts. Unless you know your gross profit margin, you could actually lose money on the sale.
By running a promotion for 20% off and having a 25% gross profit margin, you’ll make only 5%.
What if you’re offering 30% off but don’t know what your gross profit margin is?
You can determine the viability of your discount strategy by knowing your gross profit margin.
Order Value On Average
It identifies the quality of purchases resulting from an email marketing campaign.
During the process of improving your business, compare the average order value of a specific email marketing campaign. With the average order value of your overall business.
By comparing the average order value of this specific email marketing campaign with the overall average order value.
You might find that a discount strategy isn’t as effective as you thought. In this way, you can test other strategies.
Ratio Of Conversion
The number of prospects who sign up for your mailing list versus the percentage of those prospects who become new customers. As to why you haven’t converted them yet, there are only two reasons:
Cart abandoned: They’re dropping off because they’ve never recovered their abandoned cart. An inapplicable or ineffective email marketing campaign.
If you don’t do enough to engage them or if you aren’t doing enough to generate their first sale, then you don’t have a successful campaign.
If your prospects are high, but your conversion rates are low, this means you are not having a problem getting cold traffic. Your problem may be the campaign itself that’s where Mailvio comes in. With its full email automation features, your conversion rate is bound to increase.
Whether you want to reduce your expenses, increase your income, or do both, you can do so. Mailvio’s intuitive automation is sure to give your email marketing campaigns the boost you’re looking for. As you are able to track the profitability of each email.
Recuperation Rate For Abandoned Cartridges
Approximately how many of your prospects browse your website and add items to their shopping carts without actually checking out?
This does happen to businesses at least 70% of the time.
But every time you do not recover an abandoned cart, then you are losing potential revenue.
You should monitor your abandoned cart recovery rate in order to:
- Don’t let it get out of control. If you have a recovery rate of 5% or lower, do not sit back and hope that things will turn around in time. You’ll need to make some considerable changes to your email marketing campaign.
- Figure out which part of the funnel needs improvement. If your recovery rate decreases, that means that the first part of your funnel has decreased in quality. Leads from it are low quality and unqualified, so you need to fix it.
Revenue Created By Email Marketing
You must know the percentage of your total revenue generated by email marketing.
Z% VS Cost of Email Marketing Campaign; and,
Z% VS Time invested in the Email Marketing Campaign.
When you spend $5,000/month on your email marketing tools and software, you also spend a lot of time implementing it.
But it only generates $3,000/month in marketing revenue. Please don’t continue on this path without changing anything.
Conclusion
Understanding profitability vs revenue and monitoring the above metrics. Will be absolutely helpful in ensuring the profitability of your email marketing campaigns. As we all know if it makes dollars in most ties it doesn’t make sense.
Every business needs to be producing revenue to survive in this competitive industry. To justify operating expenses, companies generally must generate a high level of revenue to counteract the balance sheet.
Applying the most efficient email tools and software to your marketing strategies. Remains the best bet to create a healthy bottom line and top line. Use Mailvio for the automation of your emailing campaigns it’s number one when it comes to boosting your ROI rates.
