A



Marketing Planning Begins & Ends with VALUE and in the Business Organization it is Processed by the VALUE CHAIN

A. The VALUE CHAIN Charts “Inbound/Input,” “Operations/Throughput,” and “Outbound/Output” VALUE Flows

B. Marketing Numbers are PER UNIT Because Marketing Plans “Customer-Oriented” and Customers Pay Per-Unit Prices

C. This VALUE CREATING Marketing Plan Calculation Method Combines KNOWLEDGE & NUMBERS [pic]

D. When we See the Simple Formula “C + M = S” as a Code for the Three Stages of VALUE CREATION it Aids Planning

E. By Setting Up a Table Based on Marketing Planning Assumptions We Can Derive Both Per Unit & Total Unit Financial Analysis

|1. Marketing Assumptions | |Industry Standard |Labor Wage | |

|PRODUCT: Merchandise Average | |20% of Sales |@ $1.50 | |

| “S” | $10 | X 100,000 Units | Sales Revenue | $1,000,000 |

|Less “C” | $ 2 | X 100,000 Units | Cost of Goods Sold | $ 200,000 |

| Equals “M” | $ 8 | X 100,000 Units | Gross Margin | $ 800,000 |

| Less “OP” | $ 5 | X 100,000 Units | Operating Expenses | $ 500,000 |

| Equals “P” | $ 3 | X 100,000 Units | Net Profit | $ 300,000 |

H. “Analytical Ratios” can be Computed to Evaluate to Operation “Vital Health Signs” [Sales Revenue ALWAYS Denominator]:

1) Cost of Goods Sold Ratio = COGS / Sales Revenue …… (same % as “C” / “S” ) ----- THIS IS BAD & WE WANT TO BE LOW

2) Gross Margin Ratio = GM / Sales Revenue …………….. (same % as “M” / “S” ) ----- THIS IS GOOD & WE WANT TO BE HIGH

3) Operating Expense Ratio = OE / Sales Revenue ……….. (same % as “Per-Unit” ) ----- THIS IS BAD & WE WANT TO BE LOW

4) Net Profit Ratio = NP / Sales Revenue ………………… (same % as “Per-Unit” ) ----- THIS IS GOOD & WE WANT TO BE HIGH

I. “BREAK-EVEN” unit volume metric can be calculated to determine how much to sell and how soon to reach profitability

* Break Even unit volume = Total Fixed Cost / per-unit $mark-up … $500,000 / $8 = 62,500 units (“treat packages”)

{NOTE: Total Fixed Cost equals Operating Expense + Invested Capital (if included)}

-- If you look closely at the BE formula, it is literally a calculation for getting a “fixed cost monkey” off your company’s back

* After identifying “how much to sell (not just produce) to become profitable, it is essential to chart the unit volume schedule

to determine “how soon” profitability will occur, and decide whether sales force quotas or sales promotion incentives are necessary to “break-even” sooner in the calendar year and provide a greater chance of reaching a higher profit level (also known as a “break even profit impact calculation”)

|Date (Month) |#Units Sold |$ M-up |Remaining $ Fixed Cost |$Profit |Sales Force Quotas & |

| | | | | |Sales Promotion Incentives |

| | | |$500,000 |0 | |

|January |5,000 |$40,000 |$460,000 |0 | |

|February |30,000 |$240,000 |$220,000 |0 |Valentines Campaign |

|March |7,500 |$60,000 |$160,000 |0 | |

|April |20,000 |$160,000 |0 |0 |Easter Campaign |

|May |10,000 |$80,000 |0 |$80,000 |Mother’s Day Campaign |

|June |6,000 |$42,000 |0 |$122,000 | |

|July |12,000 |$96,000 |0 |$218,000 |4th July Campaign |

|August |3,000 |$24,000 |0 |$242,000 | |

|September |4,000 |$32,000 |0 |$274,000 | |

|October |4,000 |$16,000 |0 |$290,000 | |

|November |1,250 |$5,000 |0 |$295,000 |Holiday Competition |

|December |1,250 |$5,000 |0 |$300,000 |Holiday Competition |

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INPUT SUPPLIES

CREATE COSTS

“C”

THROUGHPUT PROCESSES

CREATE MARGINAL VALUE

“M”

[“MARK-UP”]

OUTPUT OFFERINGS

CREATE SALES REVENUE

“S”

CUSTOMERS PAY PRICE

+

=

Material

Labor

[“Product/Variable” Costs]

Operating

&

Marketing

Expense

Net

Profit

&

Return

PER UNIT CALCULATIONS

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