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

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

3. 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.)

4. 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

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

6. 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%

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

8. 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%

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

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

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

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

13. 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)

14. 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)

15. 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)

16. 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.)

17. Any Questions?