Cost of Sale Helps Manage Advertising Staff

Cost of sale is just as important to managing the profit goals of a Web business as gross margin, which is profit after content and production.

At least in some operations, cost of sale is defined as the sum total of all sales and marketing costs, including staff, commissions, benefits, promotions, research and other related expenses.

There are many variations to the cost structure of a company or operating unit, but one lengthy and profitable experience allowed me to set a target of sales and marketing costs at 30 to 35 percent of revenue.

Just like with content and production costs, when the cost level drops below 30 percent, it was a signal to invest more in sales and marketing, while a cost level above 35 percent raiseed questions about either overinvestment of funds or sales staff falling short of appropriate goals.

So with 30 to 40 percent of expenses going to content and production, and another 30 to 35 percent going to sales and marketing, the remaining 25 to 40 percent goes to administration, technology, taxes, other expenses and finally to net profit. Managing these two important components of cost went a long way toward achieving profits in an extraordinarily high growth environment.