Measuring Marketing

Chapter 4 Net Profit

Measurement Need

Determining whether and how much marketing contributes to the bottom line, after total costs have been subtracted from total revenues.

Solution

This is the final profit after taxes; selling, general, and administrative expenses; research and development; nonrecurring; and other income statement take-outs, including operating expenses, interest, and taxes.i

$P_n=\left(V\times M_c\right)-E_m-E_o-IT$

Where

Pn = net profit (in dollars)

V = customer volume (in units sold)

Mc = margin per customer (in dollars)

Em = marketing expenses (in dollars)

Eo = operating expenses (in dollars)

IT = interest and taxes (in dollars)

Margin per customer is calculated as follows:

$M_c=R_c-C_v$

Where

Mc = margin per ...