EXPLAINING DIFFERENCES…EXPLAINING SIMILARITIES NATURE VS NURTURE.
Explaining the Different Costs, and Profits on The Dashboard of The Marketing Machine Ted Mitchell.
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Explaining the Different Costs, and Profits on The Dashboard of The Marketing Machine Ted Mitchell
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Transcript of Explaining the Different Costs, and Profits on The Dashboard of The Marketing Machine Ted Mitchell.
Explaining the Different Costs, and Profits on The Dashboard of
The Marketing Machine
Ted Mitchell
Useful Gauges and Indicators on the Dashboard of a Marketing Machine
Selling a single size cup of coffee P1: previous performance
P2: current performance
Change in performance∆P = P2-P1
%∆
Quantity Sold (Demand), Q
Selling Price, P
Revenue, R = P x Q
Cost of Goods Sold, COGS = V x Q
Gross Profit, G = R-COGS
Total Communication Expense & Promotion Expense, EMarketing Profit, Z
Customer Awareness, W
Customer Satisfaction, Sat
Understanding The Gauges
• On The Marketing Dashboard As Marketing Metrics used for Managing the Marketing Machine
There are Two types of costs that
• Are important in the gauges of profitability• 1) Cost of Goods Sold is the direct traceable
costs involved in making the product or delivering a service.
• 2) Total cost of marketing activities designed to have an immediate impact on customer demand in the current period (such as advertising, promotion, sales force and server numbers and salaries
Two Classic Types of Costs are defined as
• 1) Fixed costs or Period costs (monthly rent, sales force salaries, heating, advertising). They may vary from month to month but they are not variable costs.
• 2) Variable costs are costs that depend directly on the number of items produced and sold (direct labor and materials used in making a product, the amount of inventory purchased and sold, the sales force commissions, etc.)
Some need definition and clarificationP1: previous performance
P2: current performance
Change in performance∆P = P2-P1
Quantity Sold (Demand), Q
Selling Price, P
Revenue, R = P x Q
Cost of Goods Sold, COGS = V x Q
Cost of Goods Sold is dependent upon and varies with the number of goods sold, Q
Gross Profit, G = R-COGS
Advertising & Promotion Expense, E
Advertising, promotion expenses and the salaries of servers and sales people are fixed for the period and do not change in the period if sales increase or decreaseSalespeople and Server Wages
Marketing Profit, Z is generated by the period’s direct marketing expenditures designed to create demand
Customer Awareness, W The percent of the total potential customers who are aware of the firm’s products
Customer Satisfaction, Sat An arbitrary scale from a survey
Total Variable Cost, COGS
COGS in Dollars
Quantity Sold, Q
Total Cost of providing the Goods to be Sold Increasesas the number of units sold Increases.
Total Variable Cost, COGS
Cost in Dollars
Quantity Sold
Total Cost of providing the Goods to be Sold Increasesas the number of units sold Increases.
COGS = (Cost per Unit, V) x Quantity sold, QCOGS = V x Q
Every cup of coffee
• Has direct costs associated with its production• 1) cost of the coffee per pound• 2) cost of the paper cups• These are considered variable costs per unit, V, because if
we sell more cups of coffee the total cost of goods sold increases
• The total cost varies with the total number of products sold
• The cost of the coffee and the cups can remain fixed and constant from period to period but it is considered a variable cost per unit
Total Variable Cost = The total of the cost directly traced to the
individual product
Dollars
Quantity Sold
Direct LaborDirect MaterialsDirect OverheadsCommissionsCouponsScrap
Fixed Cost for the period
• May be changed on the discretion of the manager at the start of the period
• More or less money may be spent on advertising• More sales people or servers may be hired• However, the amount of money decided upon at the
beginning of the period does not change if coffee sales increase or decrease during the week
• Advertising expense can vary every week but it is not defined as a variable cost
• Advertising is defined as a fixed cost
Fixed Marketing Costs directly Impacting Sales for the Period
Dollars
Quantity
Advertising and Promotion ExpenseNumber of servers and sales people hired for the week
Dollars
Quantity
Two Types of CostsTotal Variable Costs that
are NOT known at the start of the period and
change as the sales volume changes
Total Fixed Costs that are known at the start of the
period and do NOT change if the sales volume happens to
change
Total Marketing Marketing Cost
Quantity
DollarsOfCost
Quantity
Total Cost = Total Variable Cost + Fixed Cost
DollarsOfCost
DollarsOfCost
Quantity, Q
Total Cost = Total Variable Cost + Fixed Marketing Cost
Total Cost = V(Q) + F
Sales Revenue, R
• Is the total amount money that is generated when a quantity of the product, Q, is sold at a selling Price per unit sold, P
• Revenue, R = Quantity sold, Q x Selling price, P• R = P x Q
Dollars
Quantity, Q
Revenue, R = V(Q) + F
Revenue = Price x Quantity Sold
Dollars
Quantity, Q
Revenue, R = V(Q) + F
Total Cost = V(Q) + F
Profit
Loss
Two main definitions of profit used on the Marketing Dashboard
• 1) Gross Profit (margin), G The profit that remains after the Cost of Goods Sold is subtracted from the Sales Revenue
• 2) Marketing Profit, ZThe profit that remains after all the period marketing expenses that were spent to directly generate sales are subtracted from the Gross profit
Some need definition and clarificationP1: previous performance
P2: current performance
Change in performance∆P = P2-P1
Quantity Sold (Demand), Q
Selling Price, P
Revenue, R = P x Q
Cost of Goods Sold, COGS = V x QGross Profit, G = R-COGS Revenue minus the total variable costs
Advertising & Promotion Expense, ESalespeople and Server Wages
Marketing Profit, Z = Gross profit – all direct marketing expenses in the period
The profit that is generated by the period’s direct marketing expenditures designed to create demand in the current period
Customer Awareness, W
Customer Satisfaction, Sat
Sample Marketing DashboardP1: previous performance
P2: current performance
Change in performance∆P = P2-P1
Quantity Sold (Demand), Q
Selling Price, P
Revenue, R = P x Q
Cost of Goods Sold, COGS = V x Q
Cost of Goods Sold is total variable cost per periodV = the direct variable cost per unit
Gross Profit, G = R-COGS Revenue minus the total variable costs
Advertising & Promotion Expense, E
The amount is decided at the start of period and does not change in the period if sales increase or decreaseSalespeople and Server Wages
Marketing Profit, Z = Gross profit – all direct marketing expenses in the period
The profit that is generated by the period’s direct marketing expenditures designed to create demand in the current period
Customer Awareness, W The percent of the total potential customers who are aware of the firm’s products
Customer Satisfaction, Sat
Dashboards are Specifically Designed
• For particular products and specific strategic business units
• A dashboard designed for helping a marketing manager run a coffee shop is likely to have different gauges and dials that a Dashboard designed to help an accountants avoid taxes and report to shareholders
Any Questions?
• Can you identify the different types of costs and profits that a marketing manager uses?
