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Marketing Metrics: Ts. Lê Thùy Hương Khoa Marketing

The document discusses various metrics used to evaluate marketing performance and profitability, including: 1) Net profit and return on sales, which measure profitability levels and rates after accounting for all costs. 2) Return on investment and related metrics, which provide a snapshot of profitability adjusted for investment assets. 3) Economic profit (also called economic value added), which measures dollar profits while accounting for required returns on capital invested. 4) Metrics for evaluating multi-period investments, including payback period, net present value, and internal rate of return. 5) Marketing return on investment (MROI), which measures the incremental financial value attributable to marketing expenditures.

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56 views23 pages

Marketing Metrics: Ts. Lê Thùy Hương Khoa Marketing

The document discusses various metrics used to evaluate marketing performance and profitability, including: 1) Net profit and return on sales, which measure profitability levels and rates after accounting for all costs. 2) Return on investment and related metrics, which provide a snapshot of profitability adjusted for investment assets. 3) Economic profit (also called economic value added), which measures dollar profits while accounting for required returns on capital invested. 4) Metrics for evaluating multi-period investments, including payback period, net present value, and internal rate of return. 5) Marketing return on investment (MROI), which measures the incremental financial value attributable to marketing expenditures.

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1

MARKETING METRICS
TS. LÊ THÙY HƯƠNG
KHOA MARKETING
2

Chapter 11
Marketing and Finance
11.1 Net Profit and Return on Sales 3

Net profit measures the profitability of


ventures after accounting for all costs.

Purpose: To measure levels and rates of


profitability
11.1 Net Profit and Return on Sales 4
11.1 Net Profit and Return on Sales 5

Return on sales (ROS) is net profit as a


percentage of sales revenue.

Purpose: To measure levels and rates of


profitability
11.1 Net Profit and Return on Sales 6

Earnings Before Interest, Taxes,


Depreciation, and Amortization (EBITDA) is a
rough measure of operating cash flow,
which reduces the effect of accounting,
financing, and tax polices on reported
profits.
11.1 Net Profit and Return on Sales 7

Exercise
A company has a Sales Revenue of
$100. Total Costs is $60, of which
Interest Payments $3, Taxes Incurred
$10 Depreciation $12 and Amortization
Charges $5. Calculate Net Profit,
Return on Sales and EBITDA
11.2 Return on Investment 8

ROI and related metrics (ROA, ROC, RONA, and


ROIC) provide a snapshot of profitability adjusted
for the size of the investment assets tied up in the
enterprise

Purpose: To measure per period rates of return on


dollars invested in an economic entity
11.2 Return on Investment 9

Exercise
A company invests $50,000 in a
business and generates a net profit of
$20,000. Calculate ROI
11.3 Economic Profit—EVA 10

Economic profit has many names, some of them


trademarked as “brands.” or economic value added
(EVA) which is measure of net operating profit after tax
adjusted for the cost of capital.

Purpose: To measure dollar profits while accounting for


required returns on capital invested
11.3 Economic Profit—EVA 11
11.3 Economic Profit—EVA 12

Example
EXAMPLE: A company has profits—NOPAT—of $200,000. They have a
straightforward capital structure, half of which is supplied by shareholders.
This equity expects a 10% return on the risk the shareholders are taking by
investing in this company. The other half of the capital comes from a bank
at a charge of 8%. The company employs total capital of $1 million.
Weighted average cost of capital (WACC) = Equity (10% * 50%) + Debt
(8% * 50%) = 9%
Cost of Capital = Capital Employed * WACC = $1,000,000 * 9% = $90,000
Economic Profit = NOPAT – Cost of Capital = $200,000 – $90,000 = $110,000
11.3 Economic Profit—EVA 13

Exercise
A company has profits—NOPAT—of $500,000. 30%
of capital structure is supplied by shareholders with
20% return. The other part of the capital comes
from a bank loan with 8% charge. The company
employs total capital of $2 million. Calculate EVA.
11.4 Evaluating Multi-period 14

Investments
Payback (#): The time (usually years)
required to generate the (undiscounted)
cash flow to recover the initial investment

Payback = Investment/ net profit


11.4 Evaluating Multi-period 15

Investments
Net Present Value—NPV ($): The present (discounted)
value of future cash inflows minus the present value of
the investment and any associated future cash
outflows.
11.4 Evaluating Multi-period 16

Investments
Example
11.4 Evaluating Multi-period
17
Investments
EXAMPLE: Harry wants to know the dollar value of his business
opportunity with a 10% discount rate on future cash flows.
11.4 Evaluating Multi-period 18

Investments
Exercise
PaintedbyJimi's investment is 50,000$, the
first year they have a net profit of $20,000,
after the second year they get $25,000 and
that after the third year is $30,000. Calculate
NPV after 3 years with discount rate of 5%.
11.4 Evaluating Multi-period 19

Investments
Internal Rate of Return—IRR (%): The
discount rate that results in a net
present value of zero for a series of
future cash flows after accounting for
the initial investment.
11.4 Evaluating Multi-period 20
Investments
EXAMPLE: Returning to Harry, we can see that IRR is an easy calculation to perform
using a software package. Enter the values given in the relevant periods on the
spreadsheet (see Table 11.3). Year 0—now—is when Harry makes the initial
investment; each of the next five years sees a $15,000 return. Applying the IRR
function gives a return of 15.24%.
11.5 Marketing Return on 21

Investment
Marketing Return on Investment (MROI), also known as
Return on Marketing Investment (ROMI): The incremental
financial value attributable to marketing (net of
marketing spending), divided by the marketing
“invested” or risked.
11.5 Marketing Return on 22

Investment
Example
FPT has an advertising cost of $10,000.
Before advertising the profit is $50,000,
after advertising the profit is $100,000.
MROI = ((100.000 – 50.000) – 10.000) /
10.000 = 400%
11.5 Marketing Return on 23

Investment
Exercise
Apple ran an advertising campaign that
cost $10,000 and generated revenues of
$70,000. Revenues with no marketing were
estimated at $35,000. The firm uses
contribution to assess financial value and
the averages contribution is 60%. Calculate
MROI.

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