DM: Formulas

Question 1

Total Cost (production cost)

Answer 1

Totals Cost = Totals Varied Cost + Total Fixed Cost

Question 2

Cost of Goods Manufactured

Answer 2

Manufacturing cost = Direct Material + Direct labor + Manufacturing Overhead

Question 3

Cost of Goods Sold

Answer 3

COGS = Begining inventory + Purchases - Ending Inventory

Question 4

Gross Profit

Answer 4

Gross Profit = Revenue – COGS (Cost of Goods Sold)

Question 5

What does Gross Profit tell us

Answer 5

Used to measure production efficiency:

Gross profit tells us how efficiently we are using our direct materials and labor to produce our product or service.

For example: If you are making 100 gram soap bars, and you have mixed together a 1kg batch of soap mix, but in the process of production you spilled some of the oils and some of the soap mixture was lost due to not having the right kind of soap molds, which means that instead of producing 10 bars of soap, you only produced 9. If each bar retails for 200 and your cogs is 500 then instead of generating a total revenue of 2000 you will generate 1800. Your cogs haven’t changed but your revenue has, lowering your gross profit.

In order to increase gross profit, you need to make the production process more efficient

Question 6

Profit Margin

Answer 6

Profit Margin = Gross Profit/Revenue * 100

Question 7

What does Profit Margin tell us?

Answer 7

Used to:
• measure production efficiency over time
• To compare the performance of two or more companies.

Gross profit can be used to calculate the gross profit margin. Expressed as a percentage of revenue, this metric is useful for comparing a company’s production efficiency over time. Simply comparing gross profits from year to year or quarter to quarter can be misleading, since gross profits can rise while gross margins fall, a worrying trend that could land a company in hot water.

The terminology here can cause some confusion: “gross margin” can be used to mean either gross profit and gross profit margin. Gross profit is expressed as a currency value, gross profit margin as a percentage.

Question 8

Calculating virility of social posts

Answer 8

X = Pf * N * Pv

Pf = probability of forwarding = number of shares divided by number of views

N = number of people who see forward

Pv = probability of viewing = percentage of people who see post that actually watches the video

If a post is shared and 100K people see it, and then 5000 of those share it the virality looks as follows:

N = 100 (assumption about the amount of extra people that see a forwarded post, depended on algorithm, can increase this number by paying or using influencers)
Pf = 5000/ 100 000 = 0.05
Pv = 25% = 0.25
X = 0.05 * 100 * 0.25
X = 1.25
Extra views =1.25 * 100 000 = 125 000 extra views generated through virality

Question 9

Unique Value of one visit to website

Answer 9

Unique Value of one visit to website = Conversion rate * Conversion value

Question 10

Maximum Cost Per Click

Answer 10

Maximum Cost Per click = Unique Value of one visit * Profit Margin

Question 11

Return on Advertising Spend

Answer 11

ROAS = Total Conversion Value / Total Advertising Spend

Question 12

What is the importance of LTV?

Answer 12

LTV needs to be higher than customer acquisition cost CAC, otherwise the business will fail

Question 13

CAC

Answer 13

CAC = Number of Customers acquired / Marketing spend

Question 14

Cost per Acquisition

Answer 14

CPA (cost per acquistition) = CPC/CR (CPC = cost per click/ CR = Conversion Rate)

Question 15

Marketing ROI

Answer 15

[((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100