Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
The two types of profit margins we’ll look at are Gross Profit (GP) and Profit Margin.
Profit Margin shows you what percentage of each dollar the business has left after all the expenses are paid.
And we’re talking about all expenses here, not just what it takes to make the product—it’s everything that eats into your cash flow.
A lot of people make the rookie mistake of obsessing over growing gross revenue while ignoring operational costs.
A large gross revenue sounds impressive, but it’s not what your business earns—it’s what it keeps that matters.
If your company is only focused on scaling gross revenue, you could find yourself with shrinking margins, where the growth you think you have isn’t real...
You’re just doing more work and spending more money, only to end up with the same profit margin as a smaller, simpler company.
Profit Margin is non-negotiable if you’re a CMO or VP.
No matter how you spin your marketing performance numbers to look good, if the company isn’t making money, your marketing is just speeding up its downfall.
If your profit margin is too thin, then it’s time to make some changes—it could mean cutting operational costs, rethinking your pricing, increasing volume, or finding inefficiencies.
You don’t want your marketing budget to be the only line item on the cutting block, so being a big-picture thinker can save your department.
A strong profit margin, on the other hand, lets you spend more to acquire new customers. Bigger marketing budgets that effectively scale the business make your job as a marketing leader fun and fulfilling again.
Showing an understanding of your company’s Profit Margins gives your voice weight in the C-suite. It breaks down barriers so you can pursue opportunities to help your company scale profitably.
Gross Profit is what’s left of your revenue after you take out the Cost of Goods Sold (COGS).
Think of it as the raw earnings from your core activities, before you deal with all the other stuff that comes with running a business.
Total Revenue is everything that comes in from sales. If you’re not tracking this down to the last dollar, your profit margin is a guess at best.
You need real numbers to make real data-driven decisions.
If you’re a CMO or VP, Profit Margin is what lets you see if your business is actually profitable or just looking good on paper.
High Profit Margin? You’re doing things right.
Low Profit Margin? You’ve got some leaks to plug—whether that’s pricing, production, or just plain bad cost control.
Profit Margin helps you see if your pricing is on point.
If your prices aren’t covering costs and still making profit, it’s time to think about changes.
Pricing isn’t about what feels good; it’s about what keeps you in the black and growing.
Slim margins shine a spotlight on your cost structure. The goal is to cut costs without compromising quality. This is where real business operators set themselves apart from the amateurs.
Think of Profit Margin as your business scoreboard.
Compare it over time—different periods, different units, different products.
The trends will tell you where you’re winning and where you need to pivot. This is the data that keeps you moving in the right direction.
Let’s look at a subscription box company that delivers curated products every month. Here’s their data for the last quarter:
Using the Profit Margin formula:
This means the company generates $4 in revenue for every $1 spent on media.
Upon deeper analysis, the CMO finds:
From this analysis, the CMO observes that while all channels except TV Advertising have the same MER, Content Marketing delivers the highest efficiency.
This insight leads to reallocating budget towards Content Marketing and optimizing TV Advertising efforts to improve media efficiency.
For experienced marketing professionals, the Media Efficiency Ratio (MER) is a vital metric that offers a consolidated view of media spend effectiveness.
It helps in measuring performance, conducting comparative analysis, optimizing budgets, and strategic planning.
By deeply understanding and leveraging MER, CMOs and VPs of Marketing can drive more effective media strategies, maximize ROI, and significantly enhance the overall success of their marketing efforts.
