Marketing Metrics

What/Why Are Marketing Metrics Used

In order to assess: The success of a marketing plan Our ability to deliver marketing objectives/goals To re-affirm/reinforce resource allocation for a

project Compare actual performance vs. planned

performance of marketing dept.

Why is Control in Marketing Planning Important Monitor progress

Understand discrepancies

Provide direction in understanding where discrepancy occurs Product mix or pricing

Provides information on whether resources must be shifted/re-allocated

Helps understand if objectives need changing

Provides recognition of changing environmental conditions/dynamics

What Are The Steps in Control Measure actual performance

Compare performance to actual established marketing objectives or strategies

Make adjustments to objectives or strategies based on analysis

What Are Common Metrics Cost of a prospect Value of a prospect ROI of a campaign Value of telesales Conversion rates of users

of competitive products Referral rates Response rates to direct

marketing Brand awareness

Perceived service/product quality

Customer turnover Market share Amount sold on promotion Reach and frequency of

advertising Recognition/recall of

advertising Sales calls/day Order fulfillment efficiency Customer satisfaction

What Are Common Metrics

Profit and Loss Statement Year Ending 2006

Sales/Revenues $20,000Cost of Goods Sold $10,000Gross Margin $10,000

Gross Margin: Subtract cost of goods sold from gross

or net sales (depending on your company)

What’s left over is gross margin on sales.

Why is it important: It covers all of the other operating

expenses and hopefully enough is left over to result in a respectable bottom line profit.

If gross margin is low, then the company should have high inventory turnover (grocery store)

If gross margin is high, inventory is probably held a long time (i.e. furniture)

Working Capital Also called working capital

How is it measured

Working capital = current assets – current liabilities Usually current assets (cash, inventory, accounts receivables) Current liabilities (accounts payable)

Why is it important: Can the company meet its day-to-day liquidity demands Is money tied up inventory Reflects a company’s efficiency and its immediate term health Are you managing your inventory, your customers and your suppliers?

How well is the firm minimizing its inventory, collecting its account receivables and pro-longing its accounts payables (liabilities)

Break Even Analysis Frequently used to study the impact of changes in price, fixed cost, and

variable cost on profit.

Calculation: Break even point = (fixed cost)/ (unit price – unit variable cost)

Value: Answers, how much do I have to sell or what expenses do I need to minimize

in order to make a profit

Analyzes relationship between total revenue and total cost to determine profitability at various levels of output.

Reflect quantity at which total revenue and total cost are equal and beyond which profit occurs.

Two Break Even AnalysesThe Only Difference is Fixed Cost

Quantity Sold (Q)

Price Per Unit (P)

Total Revenue (TR) (P*Q)

Unit Variable Cost (VC)

Total Variable Cost (TVC) (UVC x Q)

Fixed Cost (FC)

Total Cost (TC) (TVC+FC) Profit (TR-TC)

0 $5 $0 $3.10 $0.00 $100 $100.00 ($100.00)10 $5 $50 $3.10 $31.00 $100 $131.00 ($81.00)20 $5 $100 $3.10 $62.00 $100 $162.00 ($62.00)30 $5 $150 $3.10 $93.00 $100 $193.00 ($43.00)40 $5 $200 $3.10 $124.00 $100 $224.00 ($24.00)50 $5 $250 $3.10 $155.00 $100 $255.00 ($5.00)60 $5 $300 $3.10 $186.00 $100 $286.00 $14.0070 $5 $350 $3.10 $217.00 $100 $317.00 $33.0080 $5 $400 $3.10 $248.00 $100 $348.00 $52.0090 $5 $450 $3.10 $279.00 $100 $379.00 $71.00

100 $5 $500 $3.10 $310.00 $100 $410.00 $90.00

Quantity Sold (Q)

Price Per Unit (P)

Total Revenue (TR) (P*Q)

Unit Variable Cost (VC)

Total Variable Cost (TVC) (UVC x Q)

Fixed Cost (FC)

Total Cost (TC) (TVC+FC) Profit (TR-TC)

0 $5 $0 $3.10 $0.00 $190 $190.00 ($190.00)10 $5 $50 $3.10 $31.00 $190 $221.00 ($171.00)20 $5 $100 $3.10 $62.00 $190 $252.00 ($152.00)30 $5 $150 $3.10 $93.00 $190 $283.00 ($133.00)40 $5 $200 $3.10 $124.00 $190 $314.00 ($114.00)50 $5 $250 $3.10 $155.00 $190 $345.00 ($95.00)60 $5 $300 $3.10 $186.00 $190 $376.00 ($76.00)70 $5 $350 $3.10 $217.00 $190 $407.00 ($57.00)80 $5 $400 $3.10 $248.00 $190 $438.00 ($38.00)90 $5 $450 $3.10 $279.00 $190 $469.00 ($19.00)

100 $5 $500 $3.10 $310.00 $190 $500.00 $0.00

Look How Fixed Cost Shifts The Break Even PointBreak Even Analysis (1)

-100

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0 10 20 30 40 50 60 70 80 90 100

Quantity Sold

To

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Fixed Costs

Total Revenue

Total Cost Variable Cost

Break even pt.

Profit

Break Even Analysis (2)

-100

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Quantity Sold

To

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Fixed Costs

Total Revenue

Total Cost

Variable Cost

Break even pt.

Price Elasticity of Demand How responsive demand is to price changes

Cigarettes and gas: Inelastic Commodities: Elastic

Measured by percentage change in quantity demanded relative to a percentage change in price.

Formula

– Elasticity = (Percentage change in quantity demanded)/ (Percentage change in price)

Mark-Up On Cost vs. Mark-Up on Selling

Cost Plus Pricing

Mark-Up on Cost Assume a manufacturer needs to have a 20% profit margin on the jackets they sell to a retailer.The manufacturer's total cost is $30.00What will be the price that the manufacturer sells the jackets to the retailer.

Price Total cost + (total cost X markup percentage)30.00$ 20%36.00$

Markup on selling priceNow assume, the manufacturer is selling the jacket to a retailer. The retailer mandates a margin of 40 percent. What is the markup on selling price.

Price total cost(1-markup percentage)

36.00$ (1.0-0.40)

Price 60.00$ 36.00$ Original Cost24.00$ Margin for Retailer

How much a manufacturer makes

How much a retailer makes

Return on Marketing Investment How an investment in marketing has an

impact on the firm’s success Calculation may vary on firm an industryq

ROI = Return/Investment Return = profit Investment = sources of capital (expenditure)