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 CHAINB. The VALUE CHAIN Charts “Inbound/Input,” “Operations/Throughput,” and “Outbound/Output” VALUE FlowsC. Marketing Numbers are PER UNIT Because Marketing Plans “Customer-Oriented” and Customers Pay Per-Unit PricesD. This VALUE CREATING Marketing Plan Calculation Method Combines KNOWLEDGE & NUMBERSE. When we See the Simple Formula “C + M = S” as a Code for the Three Stages of VALUE CREATION it Aids PlanningF. By Setting Up a Table Based on Marketing Planning Assumptions We Can Derive Both Per Unit & Total Unit Financial AnalysisINPUT SUPPLIESCREATE COSTS“C”THROUGHPUT PROCESSESCREATE MARGINAL VALUE“M” [“MARK-UP”]OUTPUT OFFERINGSCREATE SALES REVENUE“S”CUSTOMERS PAY PRICE+=Material Labor[“Product/Variable” Costs]Operating& MarketingExpenseNetProfit&ReturnPER UNIT CALCULATIONS11MARKETING STRATEGY PRICE & FINANCIAL ANALYSIS CALCULATIONS GUIDE [Dr. Carter]1. Marketing AssumptionsPRODUCT: Merchandise AverageIndustry Standard20% of SalesLabor Wage@ $1.50InvestorsExpect 30%ReturnCustomers & Competitive Market LimitsPrice to $102. Percentages (%) 5% 20% 15% 50% 80% 30% 100%3. Formula C+ M = S4. Sub-FormulaMat’l. Labor Op. Ex. Profit5. Dollars ($)$2 - $1.50= $0.5020% X $10= $2 $1.50 50% X $10= $580% X $10= $8{also $5+$3=$8} $3 $10NOTE: Given figures based on “Marketing Assumptions” in RED & Calculated figures derived using simple algebra in GREENG. To calculate the “C + M = S” for an entire marketing channel, use the format below, where “Manufacturer” selling price (“S”) is equalto “Wholesaler” cost (“C”) and “Wholesaler” selling price (“S”) is equal to “Retailer” cost (“C”):Manufacturer/Producer: C + M = SWholesaler/Distributor: C + M = S Retailer/Merchant: C + M = S22MARKETING STRATEGY PRICE & FINANCIAL ANALYSIS CALCULATIONS GUIDE [Dr. Carter]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 UNITFINACIAL STATEMENTS TOTAL UNITS FIGURES “S” $10 X 100,000 Units Sales Revenue $1,000,000Less “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 $ 300,000I. “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 LOW2) Gross Margin Ratio = GM / Sales Revenue …………….. (same % as “M” / “S” ) ----- THIS IS GOOD & WE WANT TO BE HIGH3) Operating Expense Ratio = OE / Sales Revenue ……….. (same % as “Per-Unit” ) ----- THIS IS BAD & WE WANT TO BE LOW4) Net Profit Ratio = NP / Sales Revenue ………………… (same % as “Per-Unit” ) ----- THIS IS GOOD & WE WANT TO BE HIGH33MARKETING STRATEGY PRICE & FINANCIAL ANALYSIS CALCULATIONS GUIDE [Dr. Carter]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 0January 5,000 $40,000 $460,000 0February 30,000 $240,000 $220,000 0 Valentines CampaignMarch 7,500 $60,000 $160,000 0April 20,000 $160,000 0 0 Easter CampaignMay 10,000 $80,000 0 $80,000 Mother’s Day CampaignJune 6,000 $42,000 0 $122,000July 12,000 $96,000 0 $218,000 4th July CampaignAugust 3,000 $24,000 0 $242,000September 4,000 $32,000 0 $274,000October 4,000 $16,000 0 $290,000November 1,250 $5,000 0 $295,000 Holiday CompetitionDecember 1,250 $5,000 0 $300,000 Holiday