Tuesday, November 12, 2013

Is it Margin or Units Sold?

In a price war (like for consumer triple-play bundles) is the significant metric units sold or margin or ARPU (average revenue per user)? It depends on who you are playing for - VCs, Wall Street, owners.

Let's say that you sell DSL for $20 and you typically sell X quantity per month. But you want to sell 2X quantity so you decide to lower the cost to $15. For one, can you double sales with your current system? Can you deploy double the sales?

The fact is that you will probably only sell 1.3X at $15, not 2X at $20. Your funnel, sales team, sales process, back office probably can't just turn up to twice the sales, even at a 25% reduction.

Let's say X equals 40 customer; at $20 brings in $800. Yet 1.3 times 40 is 52 units at $15, which grosses at $780. OOPS! More work less revenue. More units, more support, more everything for less revenue, less margin.

Just some food for thought.

No comments: