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MBM6Ch2Slides_d2l1.pptx
MBM6
Chapter 2
Marketing Metrics and Marketing Profitability
Marketing Metrics are at the core of a market-based business striving to achieve profitable growth.
Tracking Marketing Performance
to Profit Performance Impact
Chapter 2 Objectives
Understand the importance of marketing metrics
Understand the difference between marketing metrics and financial metrics
Measure marketing profitability and Marketing ROI
Manage marketing profitability
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Chapter 2
Company Performance
and the Importance of Marketing Metrics
In this section we will look at financial performance and the role marketing metrics play in providing a broader view of overall company performance.
Marketing Metrics and Marketing Profitability
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Chapter 2
Company Performance
How would you rate this company’s performance over the last 3 years?
Good, average, or poor?
Gross Profit= Sales Revenue-COGS
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Chapter 2
The Importance of Marketing Metrics
Marketing metrics provide a different view of company performance. What problems do you see here?
Deteriorating!!
Eroding!!
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Chapter 2
External Market Performance
The market is growing faster than company sales. This means the company is losing market share, but is likely unaware without utilizing these market metrics.
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Chapter 2
Profit Impact of a Hold Share Strategy
Managing market share to hold share in a rapidly growing market would have yielded the company $41 million in additional profits over the past 3 years.
Stable
Demand X Share = Revenues
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The Importance of Marketing Metrics
Analytics: The measurement devices or data used to create metrics.
Metrics: The specific measures of performance.
For Example: The measurement system used to measure customer satisfaction is a Marketing Analytic. A Customer Satisfaction Index of 72 and % Very Satisfied of 20% are Marketing Metrics.
MBM6
Chapter 2
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Chapter 2
A Well-Balanced Performance Profile
Financial Metrics: These are internal performance metrics.
Marketing Metrics: These are external performance metrics.
Internal View of Performance
External View of Performance
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Chapter 2
Profit Impact of Marketing Metrics
Most marketing metrics have high correlation with profitability.
Businesses that perform well on these marketing performance metrics are considerably more profitable.
MBM6
Chapter 2
Customer Focus, Customer
Why are forward-looking performance metrics especially important?: Future predicting
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Chapter 2
Measuring Marketing Profitability
and Marketing ROI
In this section we will look at how to measure Marketing Profitability (NMC) and Marketing ROI.
Marketing Metrics and Marketing Profitability
MBM6
Chapter 2
Adding Marketing Profits to Performance
Net Marketing Contribution (measure of marketing profits)= Gross Profit- Marketing & Sales Expenses)
Net Marketing Contribution (measure of marketing profits)= Gross Profit- Marketing & Sales Expenses)
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Operational Income
Net Marketing Contribution (measure of marketing profits)= Gross Profit- Marketing & Sales Expenses)
Operating Income= Sales Revenues- 3 major Expenses (COGS, SGA Expenses, & Other Operating Expenses)
Marketing & Sales Expenses + G&A Expenses
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MBM6
Chapter 2
Estimating Marketing & Sales Expenses (% sales)
Data Challenge: Use 75% of SGA as an estimate of MSE
Unfortunately, most companies do not report their Marketing & Sales Expenses separately in their financial reports except for the sample of companies above. Based on the data above, 75% of SGA should be a good estimate when actual marketing & sales expenses are not reported.
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Chapter 2
Marketing ROI and Marketing ROS
Marketing ROI = Net Marketing Contribution
Marketing & Sales Expenses
Marketing ROS = Net Marketing Contribution
Sales Revenues
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Chapter 2
Marketing ROI and Marketing ROS
Marketing Return on Sales (ROS)
= Net Marketing Contribution/Sales X 100%
= $30 million/ $125 million x 100%
= 24%
$125
$100
$75
$50
$25
$0
Sales $125 mil.
NMC $30 mil.
This marketing profitability metric tells us what portion of sales are marketing profits.
NMC is 24% of sales
MBM6
Chapter 2
Marketing ROI and Marketing ROS
$125
$100
$75
$50
$25
$0
Sales
$125M
NMC
$30M
NMC is:
NMC = Gross - Marketing & Profit Sales Exp.
Gross Profit
$48.5M
Mktg. & Sales Expenses
$18.5M
Marketing Return on Investment (ROI)
= NMC/Mktg & Sales Exp. X 100%
= $30 million/ $18.5 million x 100%
= 162%
In this case, for every $1 invested in Marketing & Sales Expenses, the company produces $1.62 in marketing profits.
($48.5M) (*$18.5M)
MBM6
Chapter 2
Marketing Profitability & Marketing Profitability Metrics
These two marketing profitability ratio metrics (ROS & ROI) allow us to compare company performance with any part of the business…regions, markets, segments, products.
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Appendix
Operating Income: The amount of profit realized from a business's operations after taking out operating expenses
Cost of Goods Sold (COGS):
Variable cost: An expense that changes on a pre-unit basis when production volume increases or decreases, such as the cost of materials, labor, and packaging.
Manufacturing Overhead: Fixed expenses for a business’s facilities, equipment, management, and other manufacturing needs, which do not vary for a given production capacity.
Sales, General, and Administrative (SGA) Expenses:
Marketing& Sales Expenses: Marketing and advertising expenses, plus costs related to all sales and customer support services.
General & Administrative Expenses: Costs associated with managing a business, such as senior manager’s salaries, professional fees, and office supplies.
Other Operating Expenses:
Research & Development expenses: Costs associated with improving products and developing new ones.
Taxes and Interest: Income, property, and other taxes, and interest on borrowing.
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