Financial Aspects of Marketing Management

Marketing 6201 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 Unit Break Even = Total $ Fixed Costs / Unit Selling Price - Unit Variable Costs Unit Contribution = Unit Selling Price - Unit Variable Cost

Contribution Analysis
Sensitivity Analysis Contribution Margin Has Many Applications Vary Each Element to Look at Alternative Strategies

Contribution Analysis
Contribution Analysis & Market Size Variety of Contribution Analysis Choices Market is Smaller than Desired Sales Contribution Analysis & Profit Impact Break-even Not Enough Businesses Must Make Profit to Survive Unit Volume to Achieve Profit Goal = Total $ Fixed Cost + $ Profit Goal / Contribution per Unit

Contribution Analysis
Contribution Analysis & Performance

Measurement
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 Products Customers Determine the Financial Impact of New Product on Existing Products

Financial Concepts
Liquidity Meet Short Time Financial Obligations Working Capital = Current Assets - Current Liabilities Operating Leverage Relationship of Fixed to Variable Costs Hi-leverage: airlines/heavy equipment Low-leverage: wholesalers internet retailers

Financial Concepts
Pro-Forma Income Statements Anticipated Revenues vs. Related Costs Based on Managers Strategic Scenarios