MARKETING CALCULATIONS GUIDE

[Dr. Carter]

  1. By Setting Up a Table Based on Marketing Planning Assumptions We Can Derive Both Per Unit & Total Unit Financial Analysis

1. Marketing Assumptions
PRODUCT:Pizza / Industry Standard
20% of Sales / Labor Wage
@ $1.50 / Investors
Expect 30%
Return / Customers &
Competitive
Market Limits
Price to $10
2. Percentages (%) / 5% / 20% / 15% / 50% / 80% / 30% / 100%
3. Formula / C / + / M / = / S
4. Sub-Formula / Mat’l. / Labor / Op. Ex. / Profit
5. Dollars ($) / $2 - $1.50=
$0.50 / 20% X $10=
$2 / $1.50 / 50% X $10=
$5 / 80% X $10=$8
{also $5+$3=$8} / $3 / $10

NOTE: Given figures based on “Marketing Assumptions” in RED & Calculated figures derived using simple algebra in GREEN

B. Now an Operating Statement [Income or Profit & Loss Statement] can be Prepared by Specifying a “DEMAND FORECAST”

--- Let’s say 100,000 merchandise items for a given time period, ok?

PER UNIT
FORMULA / PER UNIT
FIGURES / 1,000,000 UNITS SOLD
[Assume No Inventory] / TOTAL UNIT
FINACIAL STATEMENTS / TOTAL UNITS
FIGURES
“S” / $10 / X 100,000 Units / Sales Revenue / $1,000,000
Less “C” / $ 2 / X 100,000 Units / Cost of Goods Sold / $ 200,000
Equals “M” / $ 8 / X 100,000 Units / Gross Margin / $ 800,000
Less “OP” / $ 5 / X 100,000 Units / Operating Expenses / $ 500,000
Equals “P” / $ 3 / X 100,000 Units / Net Profit / $ 300,000

C. “Analytical Ratios” can be Computed to Evaluate to Operation “Vital Health Signs” [Sales Revenue ALWAYS Denominator]:

1)Cost of Goods Sold Ratio =COGS / Sales Revenue …… (same % as “C” / “S” ) ----- THIS IS BAD & WE WANT TO BE LOW

2)Gross Margin Ratio = GM / Sales Revenue …………….. (same % as “M” / “S” ) ----- THIS IS GOOD & WE WANT TO BE HIGH

3)Operating Expense Ratio = OE / Sales Revenue ……….. (same % as “Per-Unit” ) ----- THIS IS BAD & WE WANT TO BE LOW

4)Net Profit Ratio = NP / Sales Revenue ………………… (same % as “Per-Unit” ) ----- THIS IS GOOD & WE WANT TO BE HIGH

D. “BREAK-EVEN” unit volume metric can be calculated to determine how much to sell and how soon to reach profitability

* Break Even unit volume = Total Fixed Cost / per-unit $mark-up … $500,000 / $8 = 62,500 units (“pizza”)

{NOTE: Total Fixed Cost equals Operating Expense + Invested Capital (if included)}

-- If you look closely at the BE formula, it is literally a calculation for getting a “fixed cost monkey” off your company’s back

* After identifying “how much to sell (not just produce) to become profitable, it is essential to chart the unit volume schedule

to determine “how soon” profitability will occur, and decide whether sales force quotas or sales promotion incentives are necessary to “break-even” sooner in the calendar year and provide a greater chance of reaching a higher profit level (also known as a “break even profit impact calculation”)

Date (Month) / #Units Sold / $ M-up ($8) / Remaining $ Fixed Cost / $Profit / Sales Force Quotas &
Sales Promotion Incentives
$500,000 / 0
January / 20,000 / $160,000 / $340,000 / 0 / NCAA BCS Bowls
February / 10,000 / $80,000 / $260,000 / 0 / Super Bowl
March / 15,000 / $120,000 / $140,000 / 0 / NCAA March Madness
April / 3,000 / $24,000 / $116,000 / 0
May / 15,000 / $120,000 / 0 / $4,000 / NBA & NHL Playoffs
June / 6,000 / $42,000 / 0 / $46,000
July / 12,000 / $96,000 / 0 / $142,000
August / 3,000 / $24,000 / 0 / $166,000
September / 8,000 / $64,000 / 0 / $230,000 / NFL Football Kick-Off
October / 6,000 / $42,000 / 0 / $272,000 / NFL Games
November / 4,000 / $32,000 / 0 / $304,000 / Holiday Competition
December / 3,000 / $24,000 / 0 / $328,000 / Holiday Competition

E. To calculate the “C + M = S” for an entire marketing channel, use the format below, where “Manufacturer” selling price (“S”) is equal to “Wholesaler” cost (“C”) and “Wholesaler” selling price (“S”) is equal to “Retailer” cost (“C”):

Manufacturer/Producer:C + M = S

Wholesaler/Distributor:C + M = S

Retailer/Merchant: C + M = S

Product: Sofa Chair-Retail Price: $150
Manufacturer's Calculations:
Market Assumptions / Industry Standard / Labor Wage / ROI / Market Limits d
Percentages / 9% / 20% / 11% / 50% / 80% / 30% / 100%
Formula / C / + / M / = / S
$1.20 / $4.80
Sub-Formula / Material / Labor / Op. Ex. / Profit / $6.00
Dollars / $0.54 /
/ $0.66 / $3.00 / $1.80
Wholesaler's Calculations:
Market Assumptions / Industry Standard / Labor Wage / ROI / Market Limits d
Percentages / 9% / 20% / 11% / 50% / 80% / 30% / 100%
Formula / C / + / M / = / S
$6.00 / $24.00
Sub-Formula / Material /
/ Labor / Op. Ex. / Profit / $30.00
Dollars / $2.70 / $3.30 / $15.00 / $9.00
Retailer's Calculations:
Market Assumptions / Industry Standard / Labor Wage / ROI / Market Limits d
Percentages / 9% / 20% / 11% / 50% / 80% / 30% / 100%
Formula / C / + / M / = / S
$30.00 / $120.00
Sub-Formula / Material / Labor / Op. Ex. / Profit / $150
Dollars / $13.50 / $16.50 / $75.00 / $45.00

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