I received a very disturbing telephone call yesterday from a client of long standing who had been approached by a web site designer to have his site revamped and ‘maximised’.

I don’t know if maximized is the new buzz word for SEO but the ignorance and arrogance of the designer left me gasping because, not only did he make some wild claims about how effective his service was going to be but the levels of profits that were going to be made.

Let’s get something straight before I go any further, there are several measures of profit, among them:-
1. gross profit
2. net profit
3. profit on investment (more often referred to as RoI)
4. profit on return (more often referred to as PoR)

Gross profit is simply what it says it is – the total of the difference between income and expenditure from traded goods or services before any other costs are taken into account. Buy an item for €5 and sell it for €10 – gross profit = €5

Net profit is the difference between income from traded goods or services after all other costs are taken into account. Buy an item for €5 and sell it for €10, deduct the costs of selling and servicing the item and all the peripheral costs of maintaining the business and net profit could be €0.25

Profit on investment simply tries to put the best face on things and is a totally worthless figure since it represents nothing. So, buy an item for €5 and sell it for €10 (look familiar?) and the profit on investment is expressed as 100%. This figure is most beloved by people who want to bamboozle their prospects into thinking that they are making far more money than they really are (which is why it is invariably stated as a percentage).

The profit most businesses look for is profit on return because this gives them a more accurate way to estimate the impact on their bottom line of any new investment – especially if they have any sort of standard costing system. So, buy an item for €5 and sell it for €10 and the all important profit on return is 50%.

Why is this figure so important?

If a businessman knows that he has a profit on return of 50%, he has a good idea of how much of his takings (50% for this item) are profit and, if he is using a standard costing system, which of his products are contributing to his profitability. He also is in a position to decide, when times are hard, which items of stock will help retain profitability (taking other related factors into account) and should be elevated to prime stock items. For example, buy an item for €5, sell it for €10 and subject the PoR to standard costs of, say, 90% and you are left with an estimated net profit of €0.50.

One of the things you should never do is try to infer that your services relating to web sites and SEO will make a profit. They won’t!

Profit is only made on the resale of goods or the sale of services. The very best that a web site or SEO can do is change the rate at which profits might be made by stimulating sales – but it is still the sale that makes the profit!

If you sell a web site for €1,000, there is no way that you can claim anything except that this is a gross cost to the business and the only extra (net) profit the business might make as a result of this expenditure is the tax allowances that can be claimed on maintenance costs and amortization (if that seems the best way to diminish the capital value) giving a net cost instead of a gross cost. This will not alter the fact, though, that you have increased above the line costs even if the aim is to at least cover those costs by increased revenue.

What the person who spoke to my client did was to muddy the water and confuse because he simply did not understand the way profits are calculated and, my client, who has always relied upon my advice, was left wondering what had just happened to him because the guy sounded so confident. Fortunately no cash had changed hands, indeed, no decision had been made and it was easy to cover old ground again and re-establish what my client already knew.

There is a great danger that internet marketers are doing themselves more harm than good by not learning how to deal with off line businesses and by being blind to reality.

If you don’t know about an aspect of offline business (or, indeed) your own, don’t fabricate a good story to sound knowledgeable – find out!

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