Financial Aspects of Marketing Management

Financial Aspects of Marketing
Graduate Marketing
Certificate Program
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
• 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:
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:
• 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
– Break Even = Total $ Fixed Costs / Unit
Selling Price - Unit Variable Costs
– Unit Contribution= Unit Selling Price Unit Variable Cost/Unit Selling Price
Contribution Analysis
 Sensitivity Analysis
– Unit Contribution Has Many Applications
– Vary Each Element to Look at Alternative
Contribution Analysis
 Sensitivity Analysis
– Evaluate Each Product in Mix
– Managers Should Evaluate Each
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
– Compare Current Product Gross Margin
against Gross Margin of New Product
Other Financial Concepts
 Pro-Forma Income Statements
– Anticipated Revenues vs. Related Costs
– Based on Managers Strategic Scenarios
Other Financial Concepts
 Market Share
– Market Share is your company’s piece
of the pie
– Market Share = Your Company’s
Sales/Total Sales In Your Category