Financial Aspects of Marketing Management

Graduate Marketing Certificate Program

Chip BesioCox 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