Financial Aspects of Marketing Management 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 Planning • 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: • • • • 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: • 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 Strategies Contribution Analysis Sensitivity Analysis – Evaluate Each Product in Mix – Managers Should Evaluate Each Element: • • • • • • • 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 Mix 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