Class_5-_Margin_Profit_Upload.ppt

Class5 Chapter3Profit Margin Margin onsales isthedifferencebetweensellingpriceandcost Thisdifferenceistypicallyexpressedeitherasapercentageofsellingpriceoronaper unitbasis Purpose Todeterminethevalueofincrementalsales andtoguidepricingandpromotiondecisions Chapter3 Purpose Todeterminethevalueofincrementalsales andtoguidepricingandpromotiondecisions UnitMargin SellingPriceperUnit CostperUnit Table3 1Sales Costs andMargins Table3 1Sales Costs andMargins Table3 2RelationshipBetweenMarginsandMarkups 10 x100 111 11or11 9 Purpose Tocalculatesellingpricesateachlevelinthedistributionchannel Figure3 1ExampleofaDistributionChannel Suppliersellingprice Customersellingpricex 1 Customermargin Purpose Tocalculatesellingpricesateachlevelinthedistributionchannel Figure3 1ExampleofaDistributionChannel 5 5 1 5 2 667 3 60 Table3 4Example PastaSauceDistributionMargins Manufacturer sCost 0 50 Sellingprice Cost Margin Whatisthefinalretailprice pricetoconsumers Table3 5Cost PurchasePrice ofRetailer SupplierSellingPrice CustomerSellingPrice 1 CustomerMargin Table3 6MarkupsAlongtheDistributionChannel HYBRID MIXED CHANELMARGINS HybridChannel Thenuseofmultipledistributionsystemtoreachthesamemarket Acompanymightapproachconsumersthroughstares theWed andtelemarketing forexample Marginsoftendifferamongsuchchannels Hybridchannelmayalsobeknownasmixedchannels Average Total 11 3 11 34 34 3 5 9 9 3 AVERAGEMARGIN Whenassessingmarginsindollarterms usepercentageofunitsalesAverageMargin PercentageofUnitSalesthroughChannel MarginEarnedinChannel1 PercentageofUnitSalesthroughChannel2 MarginEarnedinChannel2 ContinuedtoLastChannelWhenassessingmargininpercentageterms usepercentageofdollarsalesAverageMargin PercentageofDollarSalesthroughChannel MarginEarnedinChannel PercentageofDollarSalesthroughChannel2 MarginEarnedinChannel2 ContinuedtoLastChannel AverageChannelMargin PercentageofUnitSalesbyPhone PhoneChannelMargin PercentageofUnitSalesOnline OnlineChannelMargin PercentageofUnitSalesthroughStore StoreChannelMargin 1 10 50 4 10 40 5 10 30 5 16 15 AverageChannelMargin 36 StockKeepingUnit SKU Atermusedbyretailerstoidentifyindividualitemsthatarecarriedor stocked withinanassortment Thisisthemostdetailedlevelatwhichtheinventoryandsalesofindividualproductsarerecorded EXAMPLE Carlsells10 000one litereconomypacksofCCC 80 000fridge friendlyhalfliters and40 000singleservings Whatwashisaveragepriceperliter EXAMPLE Carlsells10 000one litereconomypacksofCCC 80 000fridge friendlyhalfliters and40 000singleservings Whatwashisaveragepriceperliter Revenue 0AveragePriceperunit UnitsSold PriceofSKU1 SKU1PercentageofSales PriceofSKU2 SKU2PercentageofSales PriceperstatisticalUnit TotalPriceofaBundleofSKUsComprisingaStatisticalUnit PriceperStatisticalUnit UnitPriceperStatisticalUnit TotalUnitsintheBundleofSKUsComprisingthatStatisticalUnit TotalCosts FixedCosts TotalVariableCosts TotalVariableCosts UnitVolume VariableCostperUnit VariableCostsandFixedCosts Table3 8FixedandVariableCostsatIncreasingVolumeLevelsUnitssold1101001 000FixedCosts 500 500 500 500VariableCosts 10 100 1 000 10 000TotalCosts 510 600 1 500 10 500TotalCostperUnit 510 00 60 00 15 00 10 50VariableCostperUnit 10 10 10 10 MarketingSpending Totalexpenditureonmarketingactivities Thistypicallyincludesadvertisingandnon pricepromotion Itsometimesincludessalesforcespendingandmayalsoincludepricepromotions TotalSelling Marketing Costs TotalFixedSellingCosts TotalVariableSellingCosts TotalVariableSellingCosts Revenues VariableSellingCosts Overtypicalplanningperiodsofaquarterorayear fixedmarketingcostsmightincludeSalesforcesalariesandsupport Majoradvertisingcampaigns includingproductioncosts Marketingstaff Salespromotionmaterial suchaspoint of purchasesalesaids couponproduc tion anddistributioncosts Cooperativeadvertisingallowancesbasedonprior periodsales VariablemarketingcostsmightincludeSalescommissionspaidtosalesforce brokers ormanufacturerrepresentatives Salesbonusescontingentonreachingsalesgoals Off invoiceandperformanceallowancestotrade whicharetiedtocurrentvolume Earlypaymentterms ifincludedinsalespromotionbudgets Couponface valuepaymentsandrebates includingprocessingfees Bill backsforlocalcampaigns whichareconductedbyretailersbutreimbursedbynationalbrandandcooperativeadvertisingallowances basedoncurrentperiodsales MarketingAsaPercentageofSales Thelevelofmarketingspendingasafractionofsales Thisfigureprovidesanindicationofhowheavilyacompanyismarketing Theappropriatelevelforthisfigurevariesamongproducts strategies andmarkets AdvertisingAsaPercentageofSales Advertisingexpendituresasafractionofsales Generally thisisasubsetofmarketingasapercentageofsales SlottingAllowances Theseareaparticularformofsellingcostsencounteredwhennewitemsareintroducedtoretailersordistributors Essentially theyrepresentachargemadebyretailersformakinga slot availableforanewitemintheirstoresandwarehouses Thischargemaytaketheformofaone timecashpayment freegoods oraspecialdiscount Theexacttermsoftheslottingallowancewilldeterminewhetheritconstitutesafixedoravariablesellingcost oramixofthetwo Purpose Toprovidearoughindicatoroftheearningsimpactofamarketingactivity Break Even Break evenoccurswhenthetotalcontributionequalsthefixedcosts Profitsandlossesatthispointequalzero TotalContribution UnitsSold ContributionperUnit TotalContribution TotalRevenues TotalVariableCosts Aspreviouslynoted TotalVariableCosts VariableCostsperUnit UnitsSoldTotalRevenues SellingPriceperU