Marketing Metrics: Bài giảng Chương 5

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Chapter 5:

Financial metrics

• Key financial indexes

Contents • Cost, price, revenue and profit

Costs

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◦ Variable and Fixed cost

• Margin & Contribution

◦ Unit margin ◦ Margin (%) ◦ Contribution per unit ◦ Contribution margin

• Marketing spending

Key metrics • Cost

Variable & Fixed Costs • Purpose: To understand how costs change with volume

• 𝑻𝒐𝒕𝒂𝒍 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕𝒔 $ = 𝑈𝑛𝑖𝑡 𝑣𝑜𝑙𝑢𝑚𝑒 # ∗ 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $

Variable & Fixed Costs • 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 $ = 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $ ∗ 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 # + 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 $ = 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 $ + 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡($)

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◦ Linear cost model does not fit every situation ◦ The classification of costs as fixed or variable depends on

context.

◦ Total cost per unit vs. Variable cost per unit

Variable & Fixed Costs • Cautions:

Margins & Contributions

Margins • Purpose: To determine the value of incremental sales, and to guide pricing and promotion decisions.

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• 𝑴𝒂𝒓𝒈𝒊𝒏 % =

𝑈𝑛𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛($) 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡($)

𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 $ −𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡($) 𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒($)

Margins • 𝑼𝒏𝒊𝒕 𝒎𝒂𝒓𝒈𝒊𝒏 $ = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $ − 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $

◦ Unit margin vs. percentage margin ◦ What is a unit ◦ Unit cost and selling price: rebates, customer discount, commissions can be considered as cost or as deduction from the selling price

◦ Margin as a percentage of costs, not as selling price:

applied in certain industries.

◦ Margin vs. Markup ◦ Various costs may or may not be included

Margins • Cautions:

Contributions • Purpose: to provide a rough indicator of the earning impact of a marketing activity.

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• 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒏𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 $ = 𝑈𝑛𝑖𝑡 𝑠𝑜𝑙𝑑 # ∗ 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $ = 𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 $ − 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠($)

Contributions • 𝑪𝒐𝒏𝒔𝒕𝒓𝒊𝒃𝒖𝒕𝒊𝒐𝒏 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕 $ = 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $ − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 $

Marketing spending

• Marketing spending: total expenditure on marketing activities. This typically includes advertising and non- price promotion. It sometimes includes sales force spending and may also include price promotion.

• Total, fixed, variable marketing cost.

Marketing spending • Purpose: to forecast marketing spending and assess budgeting risk

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• 𝑻𝒐𝒕𝒂𝒍 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒎𝒂𝒓𝒌𝒕𝒊𝒏𝒈 𝒄𝒐𝒔𝒕𝒔 $ = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 $ ∗ 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠(%)

Marketing spending • 𝑻𝒐𝒕𝒂𝒍 𝒎𝒂𝒓𝒌𝒆𝒕𝒊𝒏𝒈 𝒄𝒐𝒔𝒕𝒔 $ = 𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠 $ + 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠 $

◦ Sales force salaries and support ◦ Major advertising campaign, including production costs. ◦ Marketing staff ◦ Sales promotion material ◦ Cooperative advertising allowances based on prior-period

sales

Marketing spending • Fixed marketing cost:

◦ Sales commissions paid to sales force, brokers, or

manufacturer representatives.

◦ Sales bonuses contingent on reaching sales goals. ◦ Early payment terms. ◦ Coupon face-value payments and rebates, including

processing fees.

◦ Bill-backs for local campaigns, which are conducted by

retailers but reimbursed by national brand and cooperative advertising allowances, based on current period sales.

Marketing spending • Variable marketing cost:

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Marketing & Finance

Key financial metrics

◦ Net profit ◦ Return On Sales (ROS)

• ROI

• NPV

• ROMI

Key financial indexes • Profit

• 𝑵𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 $ = 𝑆𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 $ − 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠 $

• 𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝑺𝒂𝒍𝒆𝒔 % =

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡($) 𝑆𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒($)

Net profit & Return on sales • Purpose: to measure levels and rates of profitability

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• 𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕 % =

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡($) 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡($)

• Investment:

◦ Return on Assets (ROA) ◦ Return on Net Assets (RONA) ◦ Return on Capital (ROC) ◦ Return on Invested Capital (ROIC) ◦ Return on Capital Employed (ROCE)

Return on Investment (ROI) • Purpose: to measure per period rates of return on dollars invested in an economic entity

• Purpose: to evaluate investments with financial consequences

spanning multiple periods.

• 𝑷𝒂𝒚𝒃𝒂𝒄𝒌 # = 𝑡ℎ𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑡𝑜 𝑝𝑎𝑦 𝑏𝑎𝑐𝑘

𝑜𝑟 𝑟𝑒𝑡𝑢𝑟𝑛 𝑡ℎ𝑒 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

• 𝑵𝒆𝒕 𝑷𝒓𝒆𝒔𝒆𝒏𝒕 𝑽𝒂𝒍𝒖𝒆 𝑵𝑷𝑽 $ =

𝑇ℎ𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑓𝑢𝑡𝑢𝑟𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠 − 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

• 𝑰𝒏𝒕𝒆𝒓𝒏𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑹𝒆𝒕𝒖𝒓𝒏 𝑰𝑹𝑹 % =

𝑇ℎ𝑒𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒 𝑡ℎ𝑎𝑡 𝑟𝑒𝑠𝑢𝑙𝑡𝑠 𝑖𝑛 𝑎𝑛 𝑁𝑃𝑉 𝑜𝑓 𝑧𝑒𝑟𝑜

Evaluating multi-period investments

• 𝑅𝑂𝑀𝐼 % =

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 $ ∗ 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 % −𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡($) 𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡($)