Marketing Finance

Marketing An Overview

Definition

Marketing

is the process of discovering and translating consumer needs and wants into product and service specifications creating demand for these products and services and then in turn expanding this demand.

Market
Market means a particular location where buyers

and sellers meet and transact purchases and sales

Types of market
-

Consumer goods market Industrial goods market Service market

Social market

Components of Marketing
Market segmentation

Product positioning
Marketing Mix

- product
- price - place

- promotion

Finance- An Overview

 Financial Accounting Cost Accounting

Management Accounting
Financial Management

Financial Accounting

Cost Accounting

Management Accounting

Need

External- law audit, society

Internal- cost finding, cost control productivity

Internal- profitability, improvement in efficiency and overall performance

Responsibility

Watchdog of shareholders

Watchdog of management

Watchdog of management esp lower and middle level Challenging the various standards of productivity

Effectiveness

Control through budgets

Control by setting standards and operating cost control

Marketing finance interdependence

Product planning including product selection, retention and abandonment as well

as dilution in product portfolio

Product pricing including both short range and long range pricing policies and

strategies
Evaluation of marketing performance both general and specific marketing

functions like product profitability analysis

Functional cost analysis to achieve cost effectiveness and also for exercising a

systematic and meaningful control over marketing cost and expenses.

Introduction and operation of an effective budgetary Control system in marketing Control of marketing operations- both the employment of fund and cost of inputs Marketing investment decision including monitoring their implementation.

Essential financial concepts used in marketing

1.

Direct material + direct labour + direct other expenses = prime cost + Factory overheads = factory or Works cost + office & Administrative overhead = cost of production + selling & distribution overhead = cost of goods sold/cost of sales

Factory overhead

Office & administrative overhead Rent & rates

Selling & distribution overhead Showroom rent & rates

Indirect material

Loose tools
Rent Power & fuel Repair and maintenance Depreciation Works manager salaries

Salaries
Telephone & postage Printing & stationery Legal expenses Audit fees

Salesman salaries
Commissions Travelling expenses of salesman Advertising Sample & free gifts

 Sales COGS = net profit

interest = profit before tax tax = profit after tax preference dividend = earnings available to equity shareholders / total no of shares outstanding = earning per share (EPS)

Break even Analysis

It is that point where we have no profit / loss

Total Revenue = Total Cost

SP * Q = Fixed Cost + total variable cost SP * Q = Fixed Cost + VC*Q SP * Q VC*Q = Fixed Cost break even quantity = FC/(SP-VC)

break even sales = FC * SP/(SP-VC)

 Break even point for a fixed cost investment Break even analysis for price cut

Break even analysis for variable cost

 CAGR = compounded annual growth rate = year to

year growth rate

Return on investment (ROI) = net profit after

tax/investments Return on capital employed = net profit after tax/total capital employed Return on sales = net profit after tax/sales

Market based Management & Financial Performance

Financial Performance Metrics Vs Marketing Performance Metrics

Cost Metrics average cost per unit Marketing & sales expenses Operating expenses
Productivity metrics Inventory turnover Sales per employee Days of accounts receivable Profitability Metrics Return on sales Return on assets Return on invested capital

Market Metrics Market growth rate Market share Market demand to potential
Competitiveness metrics relative product quality Relative service quality Relative price and value Customer Metrics Customer Satisfaction Customer retention Customer loyalty

Marketing Strategies & Profitability

Net profit = Revenue Expenses

= quantity sold * Selling price per unit Cost of goods sold operating expenses
Customer Margin = Revenue per customer variable cost per customer Total Contribution = Customer Volume * Customer Margin Net marketing contribution = Total contribution market expenses Net marketing contribution = Sales Revenue * % Gross Margin Marketing &

Sales Expense

Net profit (before taxes) = Net marketing contribution operating expenses

 Market ROI = Net marketing Contribution/Marketing &

sales expense * 100

Marketing ROS = Net marketing Contribution/ sales

Revenue * 100

Marketing Strategies & Assets

Investment in Accounts Receivable

accounts receivable = Sales Revenue * percent days outstanding accounts receivable = Customer Volume* Revenue per customer * percent days outstanding
Investment in inventory

Inventory investment = total cost of inventory * percent days of inventory Inventory investment = customer volume * unit cost per customer * percent days of inventory
Fixed Assets