Marketing Math

Question 1

unit contribution

Answer 1

=revenue per unit - variable cost per unit

• VC = changes w/volume of production (manufacturing, shipping, sales commissions)
• FC = exec salaires, rent

Question 2

contribution margin

Answer 2

= unit contribution / revenue per unit

• relative measure of assessing unit contribution compared to selling price, expressed as %
• you can analyze margins thru value chain

Question 3

break-even volume

Answer 3

= fixed costs / unit contribution

• BEV is the number of units you need to sell to cover total fixed costs
• use to make decisions about new investments

Question 4

market share

Answer 4

• generally refers to sales
  1. = firm sales / total market sales (sales/revenue market share,w/in product category)
  2. = firm units sold / total market units sold (volume market share)
  3. = firm customers / total customers (customer market share)

Question 5

profit impact

Answer 5

profit = (unit contribution * units sold) - FC

• impact of a product on company profits
• you can compute #units that must be made and sold to achieve specific profit target

Question 6

CLV (conceptually)

Answer 6

*value of the entire stream of purchases that the customer would make over a lifetime of patronage

• tells us whether to acquire/retain/let go of an individual customer, an entire customer base, or company
• NPV of all future streams of profits that a customer generates over the life of his biz w/firm

Question 7

simplified CLV formula

Answer 7

=annual contribution per customer * years as a customer
=unit contribution * units per customer per year * years as a customer

• annual contribution: annual ave amount typical customer would spend with business, with expenses subtracted
• years as customer: typical length of time customer spends w/co (could result in diff customer groups)
• doesn’t account for discounting profits over time, segments w/diff values and lifetimes, or retention rate (mortality/attrition)
• retention has biggest impact for % change

Question 8

expanded CLV formula

Answer 8

= m * (r / 1+i-r) - AC
= profit margin * margin multiplier

m= margin
i= discount rate
r= retention rate 
AC = acquisition cost

Question 9

sunk costs

Answer 9

• when money has already been spent
• usually market research, R&D expenses
• can’t be a factor in your decisions moving forward bc no matter the course of action, the money is gone and unrecoverable

Question 10

return on marketing investment

Answer 10

=incremental gain from investment / cost of investment

-measure of efficiency, can be expressed in terms of NI, rev, market share, CM