| Marketing by the Numbers A21
Appendix 2 | Marketing by the Numbers A21
Note that this percentage is lower than estimated, and this ratio is seen easily in the per- centage of sales column in Table A2.2. Stating items in the profit-and-loss statement as a per- cent of sales allows managers to quickly spot abnormal changes in costs over time. If there was previous history for this product and this ratio was declining, management should ex- amine it more closely to determine why it has decreased (that is, because of a decrease in sales volume or price, an increase in costs, or a combination of these). In ConnectPhone’s case, net sales were $25 million lower than estimated, and cost of goods sold was higher than estimated (55 percent rather than the estimated 50 percent).
Net profit percentage
The net profit percentage shows the percentage of each sales dollar going to profit.
The percentage of each sales dollar going
It is calculated by dividing net profits by net sales:
to profit—calculated by dividing net profits by net sales.
net profit
Net profit percentage =
0.01 = - 1.0%
net sales
This ratio is easily seen in the percent of sales column. ConnectPhone’s new product gener- ated negative profits in the first year, not a good situation given that before the product launch net profits before taxes were estimated at more than $12 million. Later in this appendix, we will discuss further analyses the marketing manager should conduct to defend the product.
Operating expense percentage
The operating expense percentage indicates the portion of net sales going to operat-
The portion of net sales going to ing expenses. Operating expenses include marketing and other expenses not directly related to operating expenses—calculated by
marketing the product, such as indirect overhead assigned to this product. It is calculated by: dividing total expenses by net sales.
total expenses
Operating expense percentage =
$100,000,000 This ratio can also be quickly determined from the percent of sales column in the profit-and-
net sales
loss statement by adding the percentages for marketing expenses and general and adminis- trative expenses (39% ⫹ 7%). Thus, 46 cents of every sales dollar went for operations. Although ConnectPhone wants this ratio to be as low as possible, and 46 percent is not an alarming amount, it is of concern if it is increasing over time or if a loss is realized.
Inventory turnover rate
Another useful ratio is the inventory turnover rate (also called stockturn rate for
(or stockturn rate)
resellers). The inventory turnover rate is the number of times an inventory turns over or is The number of times an inventory turns
sold during a specified time period (often one year). This rate tells how quickly a business over or is sold during a specified time
period (often one year)—calculated based is moving inventory through the organization. Higher rates indicate that lower investments
on costs, selling price, or units. in inventory are made, thus freeing up funds for other investments. It may be computed on
a cost, selling price, or unit basis. The formula based on cost is:
cost of goods sold
Inventory turnover rate =
average inventory at cost Assuming ConnectPhone’s beginning and ending inventories were $30 million and $20 mil-
lion, respectively, the inventory turnover rate is:
Inventory turnover rate =
$25,000,000 That is, ConnectPhone’s inventory turned over 2.2 times in 2011. Normally, the higher the
turnover rate, the higher the management efficiency and company profitability. However, this rate should be compared to industry averages, competitors’ rates, and past performance to determine if ConnectPhone is doing well. A competitor with similar sales but a higher in- ventory turnover rate will have fewer resources tied up in inventory, allowing it to invest in other areas of the business.
Return on investment (ROI)
Companies frequently use return on investment (ROI) to measure managerial effec-
A measure of managerial effectiveness tiveness and efficiency. For ConnectPhone, ROI is the ratio of net profits to total investment and efficiency—net profit before taxes
required to manufacture the new product. This investment includes capital investments in divided by total investment.
land, buildings, and equipment (here, the initial $10 million to refurbish the manufacturing facility) plus inventory costs (ConnectPhone’s average inventory totaled $25 million), for a total of $35 million. Thus, ConnectPhone’s ROI for this product is:
= Return on investment = $1,000,000 =- 0.286 = - 2.86%
net profit before taxes
investment
A22 Appendix 2 | Marketing by the Numbers
ROI is often used to compare alternatives, and a positive ROI is desired. The alternative with the highest ROI is preferred to other alternatives. ConnectPhone needs to be concerned with the ROI realized. One obvious way ConnectPhone can increase ROI is to increase net profit by reducing expenses. Another way is to reduce its investment, perhaps by investing less in inventory and turning it over more frequently.
Parts
» | Marketing: Creating and Capturing Customer Value 3
» | Marketing: Creating and Capturing Customer Value 11
» | Marketing: Creating and Capturing Customer Value 13
» | Marketing: Creating and Capturing Customer Value 25
» | Marketing: Creating and Capturing Customer Value 29
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 37
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 41
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 43
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 51
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 55
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 57
» | Company and Marketing Strategy: Partnering to Build Customer Relationships 63
» | Analyzing the Marketing Environment 65
» | Analyzing the Marketing Environment 71
» | Analyzing the Marketing Environment 73
» | Analyzing the Marketing Environment 77
» | Analyzing the Marketing Environment 79
» | Analyzing the Marketing Environment 81
» | Analyzing the Marketing Environment 85
» | Analyzing the Marketing Environment 87
» | Analyzing the Marketing Environment 89
» | Managing Marketing Information to Gain Customer Insights 97
» | Managing Marketing Information to Gain Customer Insights 99
» | Managing Marketing Information to Gain Customer Insights 103
» | Managing Marketing Information to Gain Customer Insights 109
» | Managing Marketing Information to Gain Customer Insights 111
» | Managing Marketing Information to Gain Customer Insights 113
» | Managing Marketing Information to Gain Customer Insights 115
» | Managing Marketing Information to Gain Customer Insights 127
» | Managing Marketing Information to Gain Customer Insights 131
» | Consumer Markets and Consumer Buyer Behavior 133
» | Consumer Markets and Consumer Buyer Behavior 137
» | Consumer Markets and Consumer Buyer Behavior 141
» | Consumer Markets and Consumer Buyer Behavior 143
» | Consumer Markets and Consumer Buyer Behavior 159
» | Consumer Markets and Consumer Buyer Behavior 163
» | Business Markets and Business Buyer Behavior 165
» | Business Markets and Business Buyer Behavior 175
» | Business Markets and Business Buyer Behavior 179
» What is Eaton’s value proposition?
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 189
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 193
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 197
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 203
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 205
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 207
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 209
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 211
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 213
» | Customer-Driven Marketing Strategy: Creating Value for Target Customers 219
» | Products, Services, and Brands: Building Customer Value 223
» | Products, Services, and Brands: Building Customer Value 225
» | Products, Services, and Brands: Building Customer Value 229
» | Products, Services, and Brands: Building Customer Value 237
» | Products, Services, and Brands: Building Customer Value 245
» | Products, Services, and Brands: Building Customer Value 247
» | Products, Services, and Brands: Building Customer Value 249
» | Products, Services, and Brands: Building Customer Value 251
» | Products, Services, and Brands: Building Customer Value 257
» | New Product Development and Product Life-Cycle Strategies 259
» | New Product Development and Product Life-Cycle Strategies 271
» | New Product Development and Product Life-Cycle Strategies 273
» | New Product Development and Product Life-Cycle Strategies 279
» | New Product Development and Product Life-Cycle Strategies 281
» | Pricing: Understanding and Capturing Customer Value 289
» | Pricing: Understanding and Capturing Customer Value 291
» | Pricing: Understanding and Capturing Customer Value 295
» | Pricing: Understanding and Capturing Customer Value 299
» | Pricing: Understanding and Capturing Customer Value 305
» | Pricing: Understanding and Capturing Customer Value 307
» | Marketing Channels: Delivering Customer Value 339
» | Marketing Channels: Delivering Customer Value 347
» | Marketing Channels: Delivering Customer Value 351
» | Marketing Channels: Delivering Customer Value 367
» | Retailing and Wholesaling 373
» | Retailing and Wholesaling 377
» | Retailing and Wholesaling 379
» | Retailing and Wholesaling 393
» | Retailing and Wholesaling 395
» | Retailing and Wholesaling 397
» | Retailing and Wholesaling 401
» | Retailing and Wholesaling 405
» | Communicating Customer Value: Integrated Marketing Communications Strategy 407
» | Communicating Customer Value: Integrated Marketing Communications Strategy 411
» | Communicating Customer Value: Integrated Marketing Communications Strategy 413
» | Communicating Customer Value: Integrated Marketing Communications Strategy 415
» | Communicating Customer Value: Integrated Marketing Communications Strategy 429
» | Communicating Customer Value: Integrated Marketing Communications Strategy 433
» | Advertising and Public Relations 435
» | Advertising and Public Relations 439
» | Advertising and Public Relations 441
» | Advertising and Public Relations 443
» | Advertising and Public Relations 445
» | Advertising and Public Relations 447
» | Advertising and Public Relations 449
» | Advertising and Public Relations 453
» | Personal Selling and Sales Promotion 463
» | Personal Selling and Sales Promotion 469
» | Personal Selling and Sales Promotion 471
» | Personal Selling and Sales Promotion 481
» How is the sales force at Nestlé Waters structured? outsells its top competitors.
» | Direct and Online Marketing: Building Direct Customer Relationships 495
» | Direct and Online Marketing: Building Direct Customer Relationships 499
» | Direct and Online Marketing: Building Direct Customer Relationships 507
» | Direct and Online Marketing: Building Direct Customer Relationships 509
» | Direct and Online Marketing: Building Direct Customer Relationships 515
» | Direct and Online Marketing: Building Direct Customer Relationships 525
» | Creating Competitive Advantage 527
» | Creating Competitive Advantage 529
» | Creating Competitive Advantage 537
» | Creating Competitive Advantage 549
» | The Global Marketplace 551
» | The Global Marketplace 553
» | The Global Marketplace 561
» | The Global Marketplace 573
» | Sustainable Marketing: Social Responsibility and Ethics 581
» | Sustainable Marketing: Social Responsibility and Ethics 583
» | Sustainable Marketing: Social Responsibility and Ethics 587
» | Sustainable Marketing: Social Responsibility and Ethics 595
» | Sustainable Marketing: Social Responsibility and Ethics 603
» | Sustainable Marketing: Social Responsibility and Ethics 605
» | Marketing by the Numbers A21
» | Marketing by the Numbers A27
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