Financial Aspects of Marketing
Management
Marketing 6201
Chip Besio
Cox School of Business
Relevant Accounting Concepts
 Variable Costs
 Costs of Goods Sold
 Indirect Variable Costs
 Fixed Costs
 Programmed Costs
 Committed Costs
Relevant Accounting Concepts
 Relevant Costs
 Expected Future Marketing Related
 Vary According to Alternative Chosen
 Sunk Costs
 Past Expenditures Irrelevant to Future Planning
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Research & Development
Previous Advertising Expenditures
 Sunk Cost Fallacy
Relevant Accounting Concepts
 Gross Margin
 Total Revenue - Total C.O.G.S.
 Unit Selling Price - Unit C.O.G.S.
 Expressed as Dollars or Percentage
 Can Be Impacted by a Change in:
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Volume
C.O.G.S.
Selling Price
Mix of Products Sold
Relevant Accounting Concepts
 Trade Margin
 Each Level of Distribution Chain
 “Markup or Mark-On”
 Usually Determined on Selling Price
 Net Profit Margin
 Sales Revenue less:
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C.O.G.S.
Other Variable Costs
Fixed Costs
 Equal Net Profit Margin (Before Taxes)
Contribution Analysis
 Break Even Analysis
 Total Revenue = Total Variable Costs + Total Fixed
Costs
 Unit Break Even = Total $ Fixed Costs / Unit Selling
Price - Unit Variable Costs
 Unit Contribution = Unit Selling Price - Unit
Variable Cost
Contribution Analysis
 Sensitivity Analysis
 Contribution Margin Has Many Applications
 Vary Each Element to Look at Alternative
Strategies
Contribution Analysis
 Contribution Analysis & Market Size
 Variety of Contribution Analysis Choices
 Market is Smaller than Desired Sales
 Contribution Analysis & Profit Impact
 Break-even Not Enough
 Businesses Must Make Profit to Survive
 Unit Volume to Achieve Profit Goal = Total $
Fixed Cost + $ Profit Goal / Contribution per
Unit
Contribution Analysis
 Contribution Analysis & Performance
Measurement
 Evaluate Each Product in Mix
 Managers Should Evaluate Each Element:
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Unit Price
Sales Volume
Unit Variable Costs
Total Variable Costs
Unit Contribution
Total Contribution
Net Profit
Contribution Analysis
 Cannibalization Assessment
 New Products May Attract Existing Product’s
Customers
 Determine the Financial Impact of New Product on
Existing Products
Financial Concepts
 Liquidity
 Meet Short Time Financial Obligations
 Working Capital = Current Assets - Current
Liabilities
 Operating Leverage
 Relationship of Fixed to Variable Costs
 Hi-leverage: airlines/heavy
equipment
 Low-leverage: wholesalers
internet retailers
Financial Concepts
 Pro-Forma Income Statements
 Anticipated Revenues vs. Related Costs
 Based on Managers Strategic Scenarios