1. Explaining the Different Costs, and Profits on The Dashboard of The Marketing Machine Ted Mitchell

2. Useful Gauges and Indicators on the Dashboard of a Marketing Machine Selling a single size cup of coffee P1: previous performance P2: current performance Change in performance ∆P = P2-P1 %∆ Quantity Sold (Demand), Q Selling Price, P Revenue, R = P x Q Cost of Goods Sold, COGS = V x Q Gross Profit, G = R-COGS Total Communication Expense & Promotion Expense, E Marketing Profit, Z Customer Awareness, W Customer Satisfaction, Sat

3. Understanding The Gauges On The Marketing Dashboard As Marketing Metrics used for Managing the Marketing Machine

4. There are Two types of costs that Are important in the gauges of profitability 1) Cost of Goods Sold is the direct traceable costs involved in making the product or delivering a service. 2) Total cost of marketing activities designed to have an immediate impact on customer demand in the current period (such as advertising, promotion, sales force and server numbers and salaries

5. Two Classic Types of Costs are defined as 1) Fixed costs or Period costs (monthly rent, sales force salaries, heating, advertising). They may vary from month to month but they are not variable costs. 2) Variable costs are costs that depend directly on the number of items produced and sold (direct labor and materials used in making a product, the amount of inventory purchased and sold, the sales force commissions, etc.)

6. Some need definition and clarification P1: previous performance P2: current performance Change in performance ∆P = P2-P1 Quantity Sold (Demand), Q Selling Price, P Revenue, R = P x Q Cost of Goods Sold, COGS = V x Q Cost of Goods Sold is dependent upon and varies with the number of goods sold, Q Gross Profit, G = R-COGS Advertising & Promotion Expense, E Advertising, promotion expenses and the salaries of servers and sales people are fixed for the period and do not change in the period if sales increase or decrease Salespeople and Server Wages Marketing Profit, Zis generated by the period’s direct marketing expenditures designed to create demand Customer Awareness, WThe percent of the total potential customers who are aware of the firm’s products Customer Satisfaction, SatAn arbitrary scale from a survey

7. Total Variable Cost, COGS COGS in Dollars Quantity Sold, Q Total Cost of providing the Goods to be Sold Increases as the number of units sold Increases.

8. Total Variable Cost, COGS Cost in Dollars Quantity Sold Total Cost of providing the Goods to be Sold Increases as the number of units sold Increases. COGS = (Cost per Unit, V) x Quantity sold, Q COGS = V x Q

9. Every cup of coffee Has direct costs associated with its production 1) cost of the coffee per pound 2) cost of the paper cups These are considered variable costs per unit, V, because if we sell more cups of coffee the total cost of goods sold increases The total cost varies with the total number of products sold The cost of the coffee and the cups can remain fixed and constant from period to period but it is considered a variable cost per unit

10. Total Variable Cost = The total of the cost directly traced to the individual product Dollars Quantity Sold Direct Labor Direct Materials Direct Overheads Commissions Coupons Scrap

11. Fixed Cost for the period May be changed on the discretion of the manager at the start of the period More or less money may be spent on advertising More sales people or servers may be hired However, the amount of money decided upon at the beginning of the period does not change if coffee sales increase or decrease during the week Advertising expense can vary every week but it is not defined as a variable cost Advertising is defined as a fixed cost

12. Fixed Marketing Costs directly Impacting Sales for the Period Dollars Quantity Advertising and Promotion Expense Number of servers and sales people hired for the week

13. Dollars Quantity Two Types of Costs Total Variable Costs that are NOT known at the start of the period and change as the sales volume changes Total Fixed Costs that are known at the start of the period and do NOT change if the sales volume happens to change

14. Total Marketing Marketing Cost Quantity Dollars Of Cost

15. Quantity Total Cost = Total Variable Cost + Fixed Cost Dollars Of Cost

16. Dollars Of Cost Quantity, Q Total Cost = Total Variable Cost + Fixed Marketing Cost Total Cost = V(Q) + F

17. Sales Revenue, R Is the total amount money that is generated when a quantity of the product, Q, is sold at a selling Price per unit sold, P Revenue, R = Quantity sold, Q x Selling price, P R = P x Q

18. Dollars Quantity, Q Revenue, R = V(Q) + F Revenue = Price x Quantity Sold

19. Dollars Quantity, Q Revenue, R = V(Q) + F Total Cost = V(Q) + F Profit Loss

20. Two main definitions of profit used on the Marketing Dashboard 1) Gross Profit (margin), G The profit that remains after the Cost of Goods Sold is subtracted from the Sales Revenue 2) Marketing Profit, Z The profit that remains after all the period marketing expenses that were spent to directly generate sales are subtracted from the Gross profit

21. Some need definition and clarification P1: previous performance P2: current performance Change in performance ∆P = P2-P1 Quantity Sold (Demand), Q Selling Price, P Revenue, R = P x Q Cost of Goods Sold, COGS = V x Q Gross Profit, G = R-COGSRevenue minus the total variable costs Advertising & Promotion Expense, E Salespeople and Server Wages Marketing Profit, Z = Gross profit – all direct marketing expenses in the period The profit that is generated by the period’s direct marketing expenditures designed to create demand in the current period Customer Awareness, W Customer Satisfaction, Sat

22. Sample Marketing Dashboard P1: previous performance P2: current performance Change in performance ∆P = P2-P1 Quantity Sold (Demand), Q Selling Price, P Revenue, R = P x Q Cost of Goods Sold, COGS = V x Q Cost of Goods Sold is total variable cost per period V = the direct variable cost per unit Gross Profit, G = R-COGSRevenue minus the total variable costs Advertising & Promotion Expense, E The amount is decided at the start of period and does not change in the period if sales increase or decrease Salespeople and Server Wages Marketing Profit, Z = Gross profit – all direct marketing expenses in the period The profit that is generated by the period’s direct marketing expenditures designed to create demand in the current period Customer Awareness, WThe percent of the total potential customers who are aware of the firm’s products Customer Satisfaction, Sat

23. Dashboards are Specifically Designed For particular products and specific strategic business units A dashboard designed for helping a marketing manager run a coffee shop is likely to have different gauges and dials that a Dashboard designed to help an accountants avoid taxes and report to shareholders

24. Any Questions? Can you identify the different types of costs and profits that a marketing manager uses?