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Explaining the Different Costs,
and Profits on The Dashboard of
The Marketing Machine
Ted Mitchell
Useful Gauges and Indicators on the
Dashboard of a Marketing Machine
Selling a single size cup of coffee
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
P1: previous
performance
P2: current
performance
Change in
performance
∆P =
P2-P1
%∆
Understanding The Gauges
• On The Marketing Dashboard As Marketing
Metrics used for Managing the Marketing
Machine
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
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.)
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
Salespeople and Server Wages
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
Marketing Profit, Z
is generated by the period’s direct marketing
expenditures designed to create demand
Customer Awareness, W
The percent of the total potential customers who
are aware of the firm’s products
Customer Satisfaction, Sat
An arbitrary scale from a survey
Total Variable Cost, COGS
Total Cost of providing the Goods to be Sold Increases
as the number of units sold Increases.
COGS in Dollars
Quantity Sold, Q
Total Variable Cost, COGS
Total Cost of providing the Goods to be Sold Increases
as the number of units sold Increases.
Cost in Dollars
COGS = (Cost per Unit, V) x Quantity sold, Q
COGS = V x Q
Quantity Sold
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
Total Variable Cost = The total of the cost
directly traced to the individual product
Dollars
Direct Labor
Direct Materials
Direct Overheads
Commissions
Coupons
Scrap
Quantity Sold
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
Fixed Marketing Costs directly
Impacting Sales for the Period
Advertising and Promotion Expense
Dollars Number of servers and sales people
hired for the week
Quantity
Two Types of Costs
Total Fixed Costs that are
known at the start of the
period and do NOT
Dollars
change if the sales
volume happens to
change
Total Variable Costs that
are NOT known at the
start of the period and
change as the sales
volume changes
Quantity
Total Marketing Marketing Cost
Dollars
Of
Cost
Quantity
Total Cost = Total Variable Cost
+ Fixed Cost
Dollars
Of
Cost
Quantity
Total Cost = Total Variable Cost
+ Fixed Marketing Cost
Dollars
Of
Cost
Total Cost =
V(Q) + F
Quantity, Q
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=PxQ
Revenue = Price x Quantity Sold
Dollars
Revenue, R
= V(Q) + F
Quantity, Q
Profit
Dollars
Loss
Total Cost =
V(Q) + F
Revenue, R
= V(Q) + F
Quantity, Q
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
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-COGS
Revenue 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
Customer Awareness, W
Customer Satisfaction, Sat
The profit that is generated by the period’s direct
marketing expenditures designed to create
demand in the current period
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-COGS
Revenue minus the total variable costs
Advertising & Promotion
Expense, E
Salespeople and Server Wages
The amount is decided at the start of period and
does not change in the period if sales increase or
decrease
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
The percent of the total potential customers who
are aware of the firm’s products
Customer Satisfaction, Sat
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
Any Questions?
• Can you identify the different types of costs
and profits that a marketing manager uses?