Gross Margins are a great indicator of the health of your business. As you may know, you can calculate your gross margin with this equation:
Revenues – Cost of Goods Sold = Gross Margin
Marketing expenses usually come in further down the income statement. Therefore adjusting marketing expenses won’t directly affect gross margin, but would rather impact net income.
Since the Marketing department can do little to change the cost of goods sold, their focus falls on the top line revenue growth.
What are some things Marketing can do to help top line revenue growth?
- Drive increased sales volume to compensate for lower margin products
- Convert more website traffic to sales leads
- Upsell customers to higher margin products
- Communicate product value (not cost) and benefits to customer
- Cross-sell related products with higher margins to customer’s original purchase
- Use Good/Better/Best positioning of higher margin products
- Promote higher margins products over lower margin items
Your product lines will have varying gross margins and your marketing will need to react accordingly.
If you can convince a customer of the high value of your product, cost becomes a minimal factor in the buying decision.
Persuade a customer of your product’s value and they will:
- buy higher margin products
- not ask for or require discounts on a purchase
- buy more products
- become loyal, return customers
All of these customer actions will lead to sustained and growing gross margins.