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MARKETING STRATEGY PRICE & FINANCIAL ANALYSIS CALCULATIONS GUIDE

[Dr. Carter]

A.  Marketing Planning Begins & Ends with VALUE and in the Business Organization it is Processed by the VALUE CHAIN

B.  The VALUE CHAIN Charts “Inbound/Input,” “Operations/Throughput,” and “Outbound/Output” VALUE Flows

C.  Marketing Numbers are PER UNIT Because Marketing Plans “Customer-Oriented” and Customers Pay Per-Unit Prices

D.  This VALUE CREATING Marketing Plan Calculation Method Combines KNOWLEDGE & NUMBERS

E.  When we See the Simple Formula “C + M = S” as a Code for the Three Stages of VALUE CREATION it Aids Planning

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

1. Marketing Assumptions
PRODUCT: Merchandise Average / 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

G. 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

H.  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

I.  “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

J.  “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 (“treat packages”)

{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 / Remaining $ Fixed Cost / $Profit / Sales Force Quotas &
Sales Promotion Incentives
$500,000 / 0
January / 5,000 / $40,000 / $460,000 / 0
February / 30,000 / $240,000 / $220,000 / 0 / Valentines Campaign
March / 7,500 / $60,000 / $160,000 / 0
April / 20,000 / $160,000 / 0 / 0 / Easter Campaign
May / 10,000 / $80,000 / 0 / $80,000 / Mother’s Day Campaign
June / 6,000 / $42,000 / 0 / $122,000
July / 12,000 / $96,000 / 0 / $218,000 / 4th July Campaign
August / 3,000 / $24,000 / 0 / $242,000
September / 4,000 / $32,000 / 0 / $274,000
October / 4,000 / $16,000 / 0 / $290,000
November / 1,250 / $5,000 / 0 / $295,000 / Holiday Competition
December / 1,250 / $5,000 / 0 / $300,000 / Holiday Competition

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