1. Marketing Math Made Really Easy Copyright 2016 by John Story

2. These slides are designed to accompany the Business Short Book Marketing Math Made Really Easy: A simple approach to the math that makes marketing work by John Story, Ph. D. (http://amazon.com/author/johnstory)http://amazon.com/author/johnstory Copyright 2016 by John Story

3. Topics Breakeven Analysis Price Elasticity of Demand Markups, Markdowns, and Margins Multiple Markdowns Trade Credit Markdowns Diagnostics Share Awareness Conversion Rates Marketing Return on Investment Copyright 2016 by John Story

4. Breakeven Analysis Contribution = P – VC P – Selling Price VC – Variable Costs per Unit Primary Breakeven Equation (P x Q) = FC + (VC x Q) P – Selling Price Q – Quantity sold FC – Fixed Costs VC – Variable Costs per Unit Copyright 2016 by John Story

5. Breakeven Example Better Boxes sells cardboard boxes FC = $200,000 per year VC = $.50 per box P = $2.50 per box How many do they need to sell to break even? Copyright 2016 by John Story

6. (P x Q) = FC + (VC x Q) FC = $200,000 per year VC = $.50 per box P = $2.50 per box Copyright 2016 by John Story

7. FC = $200,000 per year VC = $.50 per box P = $2.50 per box At Q = 100,000 TR = $250,000 TC = $250,000 Copyright 2016 by John Story

8. Price Elasticity of Demand Copyright 2016 by John Story

9. If the price of oranges goes down 30% and the quantity demanded increases 20%, the elasticity of demand would be: Copyright 2016 by John Story

10. Elasticity ranges from 0 to infinity Copyright 2016 by John Story

11. How do you calculate percentage change? Copyright 2016 by John Story

12. Example: Point Elasticity Copyright 2016 by John Story

13. Example: Arc Elasticity Copyright 2016 by John Story

14. Example: Copyright 2016 by John Story

15. Markups and Markdowns P = VC + MU P – Selling price VC – Variable costs MU – Markup MU P – % Markup on Selling Price = MU/P MU C – % Markup on Cost = MU/C Copyright 2016 by John Story

16. Markup and Margin Cost$50 Markup30% (.3 x $50 = $15) Selling price $65 30% MU C results in 15/65 = 23.1% MU P Cost$50 Markup$50 Selling price $100 MU P = 50/100 = 50% MU C = 50/50 = 100% Contribution Margin = 50/100 = 50% = MU P 50% Markup on Selling Price will always give you a 100% Markup on Cost Copyright 2016 by John Story

17. Multiple Markdowns 50/30/10 means that you get 50%, then 30%, then 10% off List Price This means that you pay (1 -.5)(1 -.3)(1 -.1) = 31.5% of list price That means your Contribution Margin is (1 – 31.5%) or 68.5% If a product has a $1,000 list price: First, you get 50%: $1,000 x 50% = $500 $1,000 – $500 = $500 Then, you get 30%: $500 x 30% = $150 $500 - $150 = $350 Then, you get 10%: $350 x 10% = $35 $350 - $35 = $315 Copyright 2016 by John Story

18. Trade Credit and Markdowns Net xx means that the invoice is due in xx days Net 30, due in 30 days Net 60, due in 60 days z/yy means that a z% discount can be taken, if the invoice is paid in yy days 2/10, take a 2% discount if paid within 10 days 3/20, take a 3% discount if paid within 20 days z/yy net xx, means the invoice is due within xx days, but if paid within yy days, you can take a z% discount 2/10 net 30 – pay within 30 days, but take a 2% discount, if paid within 10 3/10 net 45 – pay within 45 days, but take a 3% discount, if paid within 10 Copyright 2016 by John Story

19. Customer Lifetime Value How much is a customer really worth? Total of lifetime spending, less costs Lifetime spending adjusted for customer attrition Lifetime spending adjusted for customer attrition and time value of money Copyright 2016 by John Story

20. Customer Lifetime Value How much is a customer really worth? Total of lifetime spending, less costs (Annual Spending – Costs) x Years as customer Average spending per year: $1,000 Time as customers: 20 years Costs of goods sold: $750 CLV = (1,000 – 750) x 20 = $5,000 Copyright 2016 by John Story

21. Customer Lifetime Value Copyright 2016 by John Story

22. Customer Lifetime Value Copyright 2016 by John Story

23. Customer Lifetime Value How much is a customer really worth? Total of lifetime spending, less costs $5,000 Lifetime spending adjusted for customer attrition $1,236 Lifetime spending adjusted for customer attrition and time value of money $1,078 Copyright 2016 by John Story

24. Diagnostics Copyright 2016 by John Story

25. Diagnostics Copyright 2016 by John Story

26. Diagnostics Copyright 2016 by John Story

27. Diagnostics Copyright 2016 by John Story