First Law of Online Marketing

First Law of Online Marketing: Cost of Sale Cannot Exceed Unit Contribution After working for a company that manufactured, distributed, and sold kitchen and housewares products through retail, wholesale, and online channels, I gained a strong appreciation for the simplicity and utility of the unit contribution metric. Given how dynamic and complex marketing online can appear at first, returning to the very basic truth of how much money you are making/losing each time one of your products leaves the premises is essential. Unit Contribution: Price - COGS - Sales Commissions - Delivery Charges - Returns = Unit Contribution Contribution Margin: (Unit Contribution) / (Unit Price) = Contribution Margin If you're not doing so today, do yourself the favor and build a simple model in excel that enables you to quantify the unit contribution of each product you're selling. (For service providers, simply replace a physical good with a unit of time like an hour) With a better understanding of the unit contribution per product and the weighted average unit contribution across the portfolio of products, you'll be much better equipped to make fast and sound investment decisions relating to online marketing tactics and programs. Scoble writes about this emerging realization here