Managing Profit Margins in an Online / Offline World
Today I received my latest copy of Inc. Magazine today, and on the cover it features one of my favorite companies. The spotlight was on Threadless.com, whom I purchase plenty of t-shirts from. The headline read “The Most Innovative Small Company in America: Don’t laugh. It makes T-Shirts. $30 million in sales, 30% profit margins“. Another amazing feature of the company is that Threadless.com generates $30 million in sales with no advertising, no professional designers, no sales force and no retail distribution.
Ever since I was very young, I always thought about profit margins and what type of numbers a company has to generate before they actually start showing a profit. I was also out at a family run Italian restaurant tonight, and as usual I thought, how much of a profit does this business actually make… and how far into the month do they have to conduct business before generating a profit and pay off their rent and staff. Imagine in the costs involved in running this type of business vs. an online venture.
It’s easy to make comparisons between the business of running a brick and mortar store vs. our methods of online marketing. Once you start generating some serious business online you start to think, how can anyone be successful in the retail / brick and mortar business. There is a reason why most businesses fail within the first few years, and that’s because of poor management and high operating costs. Taking the leap to make money online is much less risky (depending on your current situation and business plan) than trying to create your own offline business and having to maintain a staff and pay off a rent each month. This can easily be justified by setting up a low end pay per click campaign that pulls a 10-50% profit margin within the first month. It is very unlikely to see this type of performance with an offline business.
In an upcoming post, I will focus on many key points of why most businesses fail (online and offline). What type of offline and online business experiences have you had over the years? If you had $100,000 to start a business, would you focus your efforts in an online business, or offline?
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