Marketing Finance

Accounting and finance with

marketing overview
Pro forma invoice statements
creation

Variable and fixed costs

Variable cost
COGS
Materials, Labour

Other variable costs

Overheads
Sales commissions
Discounts

Fixed costs
Programmed costs
Advertising
Sales promotion

Committed costs
Rent
Administrative / clerical

Variable /Fixed costs

Selling expenses
Salary
Commission / bonus

VC
COGS
Materials, Labor, overheads tied directly
with production

Other VC
Volume related VC
Commissions, discounts etc.

FC
Programmed costs
Those that generate sales
Marketing costs such as ASP, Sales force
salries etc

Committed costs
Those that maintain the organization
Rent, administrative/ clerical salaries

V/F costs
Fixed plus variable components
Fixed Salary
Variable commission or bonus

Relevant and sunk costs

Relevant costs are expected to occur
in future due to some marketing
action
Includes opportunity cost

Sunk costs
Past expenses for an activity
R&D, test marketing and advertising
expenses
Sunk cost fallacy: Recover all the
spent money by spending even more
money in future

Margins

Difference between SP and Cost

Three types
Gross margin
Trade margin
Profit margin

Gross margin (gross profit)

TR TC for total
Unit SP unit cost for each unit

Gross margin

GM
Value
Percentage
Net Sales 100 100%
COGS
40 -40%
---------------------------------------------------- GP margin 60
60%
Same concept for both total or unit
GP

Trade Margin
Difference between Unite sales price
and unit cost at each marketing
channel
(Manufacture to wholesaler to
retailer)
Also called Markup and expressed as
percentage

Trade Margin
Always expressed as percentage of
selling price
(Margin Selling Price) x 100
(10 20 ) x 100 = 50%

Trade margin workings

Always work backwards

MRP
100
Retailer
80
20%
Wholesaler
72
10%
Manufacturer
36
50%

Net Profit Margin (Before

Taxes)
What remains from the sales revenue
after all costa have been deducted
Net Sales
100
COGS
30

GPM
70
Selling expenses 20
Fixed expenses 40
NPM
10

Contribution analysis
Difference between total sales
revenue and total variable cost
Or for each unit, SP Vc
Contribution analysis brings out the
relationship between costs, prices,
volume and profit

Breakeven analysis

No profit no loss point

TR = TFCc+ TVc
Unit Break even volume =
Total Fc (Unit SP Unit Vc)

Denominator = contribution per unit

Break-even analysis
If SP =5, Vc= 2, Fc = 30,000

Unit break even volume =

30,000 (5-2) = 10,000 units
Or
Rupee break-even volume=
10,000 x 5 = 50,000 rupees

Contribution margin

CM = (Unit SP Unit Vc) Units SP

(5 2) 5 = 0.6 or 60%
Rupee Break even volume =
Total Fc CM = 30,000 0.6 =
50,000 rupees

Sensitivity analysis
BEP can change when SP, VC FC
change
SP Vc Fc CM BEP units BEP
Value
5 2 40k
4 2 30k
5 1.5 30k
Can you find out?

Contribution analysis and profit

impact
A modified break even analysis is
used to incorporate a profit goal
To incorporate a profit goal in the BE
formula, simply treat it as additional
fixed cost
Unit volume to achieve profit goal =
(Total Fc + Rupee Profit Goal)
Contribution per unit

Contribution analysis and profit

impact
Profit goal example
SP = 25, Vc = 10, Total Fc =
200,000,
Profit Goal = 20,000
Unit break-even volume with profit
goal
= (200,000 + 20,000) (25 10) =
14667 units

Contribution analysis and profit

impact