Basic Marketing Metrics

September 4, 2019
Teacher: Ms. Joyce Bait
 Chapter 1: Pay per click (PPC) method
Activity: Be on the First Page!
• The Internet has become a vital marketing medium, and pay-per-click is one
of the many ways for a business to attract traffic. It is risky, and a business
can spend a lot of money, get a lot of visits, but end up with very few actual
sales. Search engines allow businesses to buy listings in their search results;
they appear next to the non-paid organic search results. These spots are sold
by auction. If the business bids the most, they get a chance, but only the
chance to be ranked first.
• 1-13 If you bid $1.25 on a key word related to your product and 14,000
people click on your PPC, how much will the search engine charge you?
Your turn:
If you budget PhP 20,000 for your PPC activity, and you aim to target at least
15,000 people to click, how much will be your bid per key word to the search
engine?
• 1-14 PPC can be expensive, so why is it popular as a marketing method?
 Marketing Profitability Metrics
• Net Marketing Contribution (NMC) – a measure of marketing profitability
that includes only components of profitability controlled by marketing.
• NMC = net sales – cost of goods sold – marketing expenses
• Interpretation: Helps in analyzing the profit contribution of a certain
product, aids in decision making such as if a product should be dropped or
kept.
• Disadvantage: No consideration of other uncontrollable expenses
 Marketing Profitability Metrics
• Compute for Net Marketing Contribution (NMC):
HD Electronics released a new product which achieved a net sales of $100
million last year with a cost of goods amounting to $55 million. The company
also incurred marketing expenses amounting to $41 million. The company is
deciding whether to continue selling the new product or to drop it and focus
on their original products.
NMC = $100 million - $55 million - $41 million = $4 million
 Profit Margin
• Profit Margin – shows the percentage of each sales dollar going to profit.
• Formula: Net Profit or Net Income / Net Sales
 Marketing Return on Sales (ROS)
• Shows the percent of net sales attributable to the net marketing contribution.
• Marketing ROS = NMC / Net Sales
• Ex. HD Electronics’ NMC is $4 million and the net sales is at $100 million.
The ROS is at 0.04 or 4%
• Interpretation: For every $100 sales, the product returns $4 to HD’s profit.
 Marketing Return on Investment (ROI)
• Measures the marketing productivity of a marketing investment.
• Marketing ROI = NMC/Marketing Expenses or Investment
• Ex. NMC of HD Elect. is $4 million and ME is $41 million, then the ROI is
at 0.0976 or 9.76%
• A higher value is desirable but this figure should be compared with previous
levels for the given product and with the ROIs of competitors.
 Marketing Profitability Metrics
• Answer/Seat work: Chapter 2 Marketing Metrics – Apple Vs. Microsoft
 Chapter 2: Apple vs. Microsoft
APPLE MICROSOFT
Sales $ 182,795,000 $ 86,833,000
COGS $ 112,258,000 $ 26,934,000

Gross Profit $ 70,537,000 $ 59,899,000

Marketing
$ 8,994,750 $ 15,474,000
Expenses
Net Income
$ 52,503,000 $ 27,759,000
(Profit)
Additional Activity: McDonald’s vs. Burger King

Compute for COGS, Profit Margin, NMC, MROS, and MROI. Which firm
performed better?
McDonald's Burger King
(in thousands)
Sales $28,105,700 $1,146,300
COGS ? ?
Gross Profit $10,902,700 $951,000
Marketing Expense $1,600,500 $321,600
Net Income/Profit $5,585,900 $233,700
Additional Activity: McDonald’s vs. Burger King

McDonald's Burger King

NPM 19.87% 20.39%

NMC $9,302,200 $629,400

MROS 33.10% 54.91%

MROI 581.21% 195.71%

 Chapter 3: Demographic Trends
• 3-13 What percentage change in the total and Hispanic populations occurred
in each state between 2000 and 2010?
2000 to 2010
State Total Hispanic
Georgia 18.34% 96.15%
Michigan -0.55% 34.73%
California 9.99% 27.79%
 Chapter 5: Evaluating Alternatives
Importance
Attributes Alternative Tablet Brands
Weight
A B C
Screen Size 0.2 0.8 1.2 0.4
Price 0.5 3 1.5 3.5
Operating System 0.1 0.5 0.5 0.4

Apps Available 0.2 0.8 1.2 1.4

Total 1.00 5.10 4.40 5.70
 Your Turn: Calculate the Brand Scores
Attributes Importance Alternative Car Brands
Weight
Suzuki Ciaz Toyota Vios Nissan Almera
Performance 0.20 5 8 6
Price 0.50 8 5 7
Design and Color 0.10 4 7 5
Fuel Efficiency 0.20 9 7 8
 Evaluating Alternatives

Attributes Importance Weight Alternative Car Brands

Suzuki Ciaz Toyota Vios Nissan Almera

Performance 0.2 1 1.6 1.2

Price 0.5 4 2.5 3.5

Design and Color 0.1 0.4 0.7 0.5

Fuel Efficiency 0.2 1.8 1.4 1.6

Total 1.00 7.20 6.20 6.80

 Fixed Costs
• Fixed Costs are costs that do not vary with production or sales level
• Examples: Rent, interest, depreciation, clerical & management salaries,
property taxes, utilities, insurance, amortization costs.
• Fixed Costs = Total Cost - Variable Cost
• Example: Company KLM has a total cost of PHP 1 million. The variable
cost is PHP 850,000. How much is the fixed cost?
• FC = PHP 1 million - 850,000 = PHP 150,000 fixed cost
 Variable Costs
• Variable Costs (VC) are costs that vary directly with the level of production or sales.
• Examples: COGS, raw materials, marketing costs, packaging, freight, electricity,
water consumption, wages of factory workers, commissions.
• Variable Costs = Total Cost – Fixed Cost or Quantity of output x VC per unit of
output
• Example: Company KLM has a total cost of PHP 2 million. If fixed cost amounted
to PHP 1.8 million, how much is the total variable cost?
• VC = PHP 2 million – 1.8 million = PHP 200,000
 Determining Costs: Exercise
• In Page 342 of your book (Marketing by the Numbers), what and how much
are the fixed costs? What and how much are the variable costs?
• Answer: All are variable costs, amounting to $156 per king-size set.
 Unit Contribution (UC)
• Unit Contribution represents the amount that each unit contributes to covering
fixed costs – the difference between price and variable costs.
• Unit Contribution = Price – Unit Variable Cost
• Example: Company KLM sells their product at PHP 730 per unit. The VC is at
PHP 482 per unit. How much is the Unit Contribution?
• UC = PHP 730 – 482 = PHP 248
• PHP 248 is the contribution per unit covering the overall fixed costs of the
company.
 Determining Costs: Example
• Please open your book at pages 286-287
Regular Pop-Tarts New Pop-Tarts Gone Nutty Difference
Unit Price $ 1.00 $ 1.20 $ 0.20
Unit VC $ 0.30 $ 0.55 $ 0.25
Unit Contribution $ 0.70 $ 0.65 $ (0.05)

Forecasted Year 1 Sales 4,000,000

Contribution lost due to cannibalization $ (200,000)

Additional sales 1,000,000

Contribution gained $ 650,000

Difference $ 450,000 incease in contribution

Additional fixed cost $ 500,000 increase in fixed cost

Increase/Decrease in Profit $ (50,000) decrease

 Break-even and Margin Analysis
• Break-even analysis determines the unit volume and dollar sales needed to be
profitable given a particular price and cost structure.
• Break-even Volume (BEV) = FC / Price-Unit VC or FC/UC
• Example: Company KLM’s FC is at PHP 20 million. If its selling price is at
PHP 168 per unit and VC at PHP 125, what is the break-even volume?
• BEV = PHP 20 million/PHP 168-PHP 125 = 465,116.27 units
 Break-even and Margin Analysis
• Break-even analysis determines the unit volume and dollar sales needed to be profitable
given a particular price and cost structure.
• Break-even Sales = BEV x Price or FC/Contribution Margin
• Contribution Margin (CM) % = Price – VC/Price or Unit Contribution/Price
• Example: Company KLM’s FC is at PHP 20 million. If its selling price is at PHP 168 per
unit and VC at PHP 125, what is the break-even sales? What is the contribution margin %?
• Break-even sales = 465,116.2 units x PHP 168 = PHP 78, 139, 521.6
• Contribution Margin % = PHP 168-125/PHP 168 = 0.256 or 25.6%
• Break-even sales = PHP 20 million / PHP 0.255 = PHP 78, 125, 000
 Cost-plus Pricing or Markup Pricing
• Cost-plus/markup pricing simply adds a standard markup to the cost of the product.
• Markup Price = Unit Cost/(1-desired markup % or ROS)
• Unit cost and unit sales must be present to calculate the markup price.
• Unit cost = VC + (FC/Unit Sales)
• Example: The VC of Company KLM is at PHP 125 and FC is PHP 20 million, unit sales is
forecasted at 1 million units.
• Unit Cost = PHP 125 + (PHP 20 million/1 million) = PHP 145
• If markup % is 25%, then markup price is = PHP 145/(1-.25) = PHP 193.33
 Exercise 2: Your turn!
• Elkins, a manufacturer of ice makers, realizes a cost of PHP 250 for every
unit it produces. Its total fixed costs equal to PHP 5 million. If the company
manufactures 500,000 units, compute for the following:
• A. Unit Cost
• B. Markup price if the company desires a 10% markup or return on sales
• C. Unit Contribution
• D. Contribution Margin %
 Exercise 2: Answer
• Elkins, a manufacturer of ice makers, realizes a cost of PHP 250 for every unit it produces.
Its total fixed costs equal to PHP 5 million. If the company manufactures 500,000 units,
compute for the following:
• A. Unit Cost = VC + (FC/Unit Sales)
• UC = PHP 250 + (5 million/500,000 units) = PHP 260
• B. Markup price if the company desires a 10% markup or return on sales
• Markup price = Unit Cost/(1-desired ROS) = PHP 260/(.90) = PHP 288.88
• C. Unit Contribution = Price-Unit VC = PHP 288.88-PHP250 = PHP 38.88
• D. Contribution Margin % = UC/Price or Price-VC/Price = PHP 38.88/PHP 288.88 = 0.13 or 13%
 Homework for next meeting
Due on October 15, 2018
• Use a clean sheet of paper in submitting your answers next meeting.
• Answer Marketing by the numbers Page 342-343 in your book. Answer question no.
10-13 only.
• Answer Marketing by the numbers Page 317 in your book.
• Additional information: Sterile Water tanks = $500, dental drill = $500, lights = $300 and
laptop = $999
• Additional questions:
• If a cost-plus/markup pricing is to be applied in each dental service, what is the markup price per
service if the unit cost is at $205 and the desired return on sales/markup rate is at 35%?
Read & Study Appendix 2 of your book for
more examples and exercises 
 Customer Lifetime Value
• Two Ways: Sum of all profits and Net Present Value (NPV)
• NPV computes a series of cash flows based on a specific discount rate.
• Useful tool in analyzing projects and investments.
• NPV formula for even cash flows:
R = net cash inflow expected/period
i = required rate of return per period
n = the no. of periods expected to generate cash flows
 NPV Calculation Example
• Assume that a customer shops at a local grocery store, spending
an average of $200 a week and resulting in a retailer profit of $10
each week from this customer. Assuming the shopper visits the
store all 52 weeks of the year, calculate the customer lifetime
value if this shopper remains loyal over a 10-year life span. Also
assume a 5 percent annual interest rate and no initial cost to
acquire the customer.
 NPV Calculation Example
• NPV = $520 x [1-((1.05)^10)/.05] – 0
• NPV = $520 x (7.72) - 0
• NPV = $4,015.30
 Exercise 1
• As a marketing manager, it is your task to assess the profitability of your
customers in creating different customer loyalty programs. Your firm has two
customer segments: Segment A gives you $20 per week but shops for 30
weeks in a year. Segment B gives you $15 per week and shops for 45 weeks in
a year. Both customer segments usually last for 10 years. Assume an interest
rate of 5% and $100 initial cost. Compute the CLV for both segments.
Which customers will you prioritize?