Basic Operating Statement or Income Statement is a Statement of Your Performance

Examples of Income statements Game Results and Game Glossary Textbook pages 80,410, 420, and 421

Benefits of Planning Chapter 3 page 71-72 Forecasted Income statement is the heart of the plan 1) Identify opportunities 2) Identify core capabilities and leverage them 3) Focused Market Strategy (Home vs Domestic or Home vs general shoe market) 4) Resource Allocation 5) Performance Roadmap (goals etc.)

Inputs and Outputs Price $90 Advertising $1,400,000 Consumer Promotion $600,000 Sales Force $160,000 Dealer Promotion Research and Development $800,000 Quantity Sold 90,000 units Variable Cost per Unit $28

Convert the inputs (your decisions) and the outputs (your basic results) into a performance or operating statement

Revenue = Price x Quantity= $90 x 90,000 $8,100,000 Cost of Goods Sold = Variable cost x Quantity variable cost per unit = $28 x 90,000 2,520,000 Gross Profit Margin 5,580,000 Markup (on price) 68.89% Advertising = 1,400,000 Cons Promotion = 600,000 Sales Force = 160,000 Dealer Promotion = 600,000 Total Promotion Expense 2,760,000 Marketing Contribution to Profit 2,820,000 Product Development and Market Research 800,000 Net Profit Contribution $2,020,000 Net Profit Margin (Return on Sales) 24.94%

Beyond the Basic Operating Statement There are two crucial ratios which indicate basic efficiency of performance 1 Markup 2 Return on Sales

Revenue, R = Price x Quantity = 90 x 90,000 $8,100,000 Cost of Goods Sold = Variable cost x Quantity 2,520,000 Gross Profit Margin, G 5,580,000 Markup (on price) (P-V)/P or G/R 68.89% Advertising = 1,400,000 Cons Promotion = 600,000 Sales Force = 160,000 Dealer Promotion = 600,000 Total Promotion Expense 2,760,000 Net Marketing Contribution 2,820,000 Product Development and Market Research 800,000 Net Profit Contribution, Z $2,020,000 Net Profit Margin (Return on Sales) = Z/R 24.94%

$ $ $ $ $ $ $ $ $ $ $ Revenue$ Shareholders View of a company Gross Profit Contribution $ $ $ Net Profits $ $ $

$ $ $ $ $ $ $ $ $ $ $ Revenue$ Should I Invest in Firm A or Firm B? Gross Profit Contribution $ $ $ Net Profits $ $ $

Gross Profit Contribution Revenue$ $ $ How efficient is the overall conversion (output ÷ input) or Return on Sales = Net Profit ÷ Revenues $ $ $ Gross Profit Contribution $ $ $ Net Profits $ $ $

Gross Profit Contribution Revenue$ $ $ How efficient is the conversion into gross profit or Markup = Gross Profit ÷ Revenues $ $ $ Gross Profit Contribution $ $ $ Net Profits $ $ $

Other Measures of Efficiency Profit Something Return on Something = ROI, Return on Investment ROA, Return on Assets ROI, Return on Inventory ROE, Return on Owner’s Equity ROME, Return on Marketing Expense Return on Cost (Markup on cost)

Measures of Efficiency Markup and Return on Sales (ROS) are particularly Important because they are used in setting a cost based selling price 1) Retail price = (Cost of Inventory Item) / (1-Markup) 2) Manufacturer’s Price = (Average Total Cost per Unit) / (1-ROS)

Markup and Return on Sales (ROS) are particularly Important because they are used in setting a cost based selling price 1) Retailer’s Selling Price = (Cost of Inventory Item) / (1-Markup) 2) Manufacturer’s Selling Price = (Average Total Cost per Unit) / (1-ROS)

You must know to convert basic inputs and outputs of the marketing machine into a Basic Operating Statement You must understand the Basic Measures of Marketing Efficiency (Markup, ROS, ROI or ROA, etc.)

Any Questions?