Completion of Accounting Chapter Summaries

ACC201: Essentials of Accounting

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Chapter 3: How Do You Estimate the Revenues of your Organization?

1. Why is it a good idea to Focus initially on a Single product or service?

It is easier to understand the accounting fundamentals with a single product or service.

2. How do you Estimate the Revenues from a single product or service?

Let it be about a million dollars over the five years

Estimated Revenues = Price per unit x Estimated demand (number of units to be sold)

How much is a person going to pay for an estimated demand per year?

How much does an advertiser pay you for advertising on your app?

The price in which you want to charge is under your control, but the estimated demand is hard to guess

3. What is the Connection between Estimated Revenues and Marketing?

Marketing can be defined as meeting the the needs of customers while earning a profit for the company.

Meet the need!

Accordingly, managing the marketing function well will help a company generate a greater revenues (top line) for their product or service and earn a higher income (bottom line) .

Accounting: trunk of the business tree: Top line of an income statement = revenues

Marketing branch: Revenues = Price x Demand

4. What is the Connection between Marketing and Selling?

Selling is just one component of marketing, and not even the most important one.

Selling is not even the most important component!

Know the customer!

In fact, Peter F. Drucker, a leading management scholar, says that “the aim of marketing is to make selling , i.e. to know and understand the customer so well that the product or service fits him well and itself. ”

5. How did this Marketing concept emerge over time?

Production concept assumes that customers want products to be inexpensive and widely available.

Product concept assumes that customers want products with good quality and great features.

Focus on like designing product

Selling concept assumes that without selling customers won’t buy enough of the product.

Your product may be of high quality but you must persuade that what you have is what they need.

Marketing concept focuses on customer needs when designing, producing and selling the product.

What are the needs of the target group? Don’t add features that aren’t necessary

6. What then is Marketing Management?

According to Philip Kotler, the author of the leading marketing text, marketing management is the art and science of targeting and getting , keeping and growing customers through creating and offering products and services that they value. The end result of marketing management is a marketing plan.

In your business plan you must talk about your marketing plan!

7. What constitutes a Marketing Plan?

The following Four Ps have traditionally been a part of a marketing plan:

· Product: the bundle of goods that create value to the customers

· Price: what the customer pays in exchange for the bundle of goods

· Place: where and how the exchange takes place (distribution channels)

· Promotion: how does the seller communicate with the customer

Initial promotion is to: target and find consumers

Routine promotion is to: retain and grow consumers

8. How do you Estimate the demand for a new product or service?

· Estimate the size of your target population = X What is your region? And data about it

· Based on your marketing plan, how many do you expect will become customers each year? = x how many? Don’t be too confident about your product!

· On average, how many units will each of these customers consume in a year? = y

· What then is the demand under steady state? = x*y

· In a typical firm, it takes a couple of years before demand reaches the steady state.

· It take time to get what you’ve predicted (at least 3-4 years)

9. What is Price Sensitivity?

· Price Sensitivity of Demand is the change in Demand over Change in Price.

· As such, Price Sensitivity is always a negative number.

· In fact, Price Sensitivity is the downward slope of the Demand Line.

· However, Price Sensitivity across products cannot be easily compared.

10. What is Price Elasticity?

· Price Elasticity of Demand is the percentage Change in Demand over Percentage Change in Price

· Unlike Price Sensitivity, Price Elasticity is a number that can be readily compared across products.

· For any product, Revenues are maximized when Price Elasticity is one .

· Products with price elasticity greater than one (in absolute value) are considered elastic goods.

· Touchy with price, a lot of competition

· Products with price elasticity less than one (in absolute value) are considered inelastic goods.