Measuring Marketing

Chapter 45 Profit Impact

Measurement Need

When launching products, marketers want to calculate the potential profit when the costs of manufacturing, product, and pricing activities are included.

Solutioni

Profit impact describes the effect on profits resulting from a company’s product-related expenditures. Two preliminary steps must be taken before calculating profit impact: determining the manufacturing sales price (MSP) and the contribution per unit (Cpu):

$MSP=P_r-M_r-M_w$

Where

Pr = retail price

Mr = retail margin

Mw = wholesale margin or mark-up

Contribution per unit is based on the formula:

$C_{pu}=MSP-C_v$

Where

Cv = total variable cost

Profit impact can now be calculated with the following formula:

Where $\text{Profit ...}$