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Shivangi-Ch. 3 PROFITS AND MARGINS-Marketing Metrics (Profit-Based Sales…
Shivangi-Ch. 3 PROFITS AND MARGINS-Marketing Metrics
MARGINS
Difference between selling price and cost
Channel Margins
The margins of sequential distribution channels, expressed as per-unit basis or a percentage of selling price.
Objective
Analyse the distribution of profits across the channel.
Decisions around the selection of an economical distribution channel.
Evaluate the best performing segments and area.
Fields
Customer's Selling Price
Supplier's Selling Price (Customer's Cost Price)
Complications
Sequencing the chain in the channel is often complex.
Non inclusion of costs occurring out of sales displays a higher margin.
Hybrid ( Mixed) Channel Margins
The margins of different distribution channels are analysed for the same brand.
Objective
Decisions around the selection of an economical distribution channel.
Making decisions around rebate or fees on the channels partners.
Fields
Customer's Selling Price for each channel.
Supplier's Selling Price (Customer's Cost Price) for each channel.
Construction
Complications
Sequencing the chain in the channel is often complex.
Non inclusion of costs occurring out of sales displays a higher margin.
Unit and Percentage Margin
Fields
Selling price per unit
Cost price per unit
Construction
Objective
To identify the most profitable ventures and product line.
Determine the value of incremental sales.
Aids decision relating to investment.
Building pricing and promotion strategies.
Complications
Account for variations in internal and external reporting for various charges.
Standardizing the computation criteria as percentage of cost or sales.
Determining the cost to be excluded or included in computation of margin.
PRICING
Average Price per Unit
It is the revenue per unit of product sold.
Price Per Statistical Unit
It consists of a fixed bundle (number) of individual SKU.
This bundle reflects the actual mix of sales of various SKUs.
Fields
Price of each SKU.
Percentage of Sales from each SKU.
Construction
Objective
Comparing the average price per unit of a product and comparing it with competitors.
Analyse the deviation between forecast and actual sales.
Complications
Ascertaining the appropriate standard of sales share of each SKU.
Continuous monitoring of the changing price and product mix is needed to monitor the statistical unit.
Changes and quality improvement are to accounted for when comparing the statistical unit of different time period.
COST BREAKUP
Variable And Fixed Cost
Variable Cost increases directly of predictably with unit sales volume.
While, Fixed cost do not vary with changing sales volume.
Construction
Fields
Total fixed cost in operations.
Variable cost per unit
Unit Volume
Objective
Forecast earning at different levels of sales volume and setting target
Financial impact of proposed marketing campaign.
Make cost-budgeting decisions and modify the mix of fixed to variable cost.
Adjust the plans and contract to optimize cost.
Complications
Quantity discounts, expectations of future process improvements, and capacity limitation limits the linear cost model.
Ascertaining the time for analysis is crucial, as in long run all cost are variable and short term the cost distribution will be skewed.
Marketing Spending
Total expenditure on marketing activities.
It includes advertising and non-price promotion.
It includes sales force spending and may also include price promotions.
Objective
Analyze and compare the marketing investment versus the return over the period of time.
Making decisions as to employing a permanent sales personnel or to employ broker on commission.
Fields
Total fixed selling costs
Total variable selling costs
Complications
Some selling variable costs apply to only a portion of total sales. for eg: some dealers qualify for cash discounts and some may not.
Incremental cost computation and and reflect over cost model and are a challenging functio to describe.
BREAK-EVEN AND CONTRIBUTION
Break-Even Sales Level
Break -even sales in either unit or revenue is required to cover total costs.
Fields
Fixed cost
Contribution per unit
OR Contribution Margin (%)
Objective
Indicator of earnings impact of the marketing activity.
Profitability stance and feasibility of the investment.
Comparison of alternative plan of action.
Decisions relating to shut down or running the business.
Measuring the financial health of the business.
Determining the projections of target profits.
Complications
Classifying each cost distinctly as fixed or variable is complex.
Determining the time frame of analysis as in long run all cost are variable and short term shows unclear picture.
Contribution per Unit/ Margin (%)
Construction
Complications
Difficult to categorize costs as fixed or variable.
Exclusion of certain expenses is a complex process.
Fields
Selling price per unit
Variable price per unit
Sales volume.
Objective
Decisions regarding carrying the operations or shut down .
Useful in short term decision making.
Actual indicator of financial soundness.
Aids in break-even decision analysis.
Profit-Based Sales Target
Fields
Fixed Costs
Target Profit
Contribution per unit OR Contribution Margin (%)
Selling price per unit
Construction
Objective
Ensure marketing and sales objective mesh with profit targets.
Determine the targeted units to be sold to achieve the aim.
Validate and evaluate the set standards with the actual
Complications
The cost should not always be considered linear with unit sold, there is a complex mix of varying cost involved.
Contingencies and incremental cost may distort the whole calculation.
Walmart Apparel Manufacturing: Cost v/s Profit Analysis
Margin Analysis of Xiomi: Offline-store versus Online Business for Indian Market
Coca- Cola SKU Price Analysis
Average Price Per Statistical Unit: 53.288
ITC CRITICAL BUSINESS UNITS
(In Crore)
In short term Investment in Agri-Business segment will be a more profitable segment than Hotels and Paper.
Haldirams Marketing Spend Analysis
Applying cooperative advertising arrangement, rebate programme for distributors and advertisement expense to be borne by Distributor.
