Six Important Ratios For Biz Café Two-Factor Models of Marketing

1. Six Important Ratios For Biz CaféTwo-Factor Models of Marketing Ted Mitchell

2. 4 Classic Performance Ratios • 1) Return on Investment, ROI • 2) Gross Return on Sales, GROS • 3) Markup on Price, Mp • 4) Return on Sales, ROS

3. 2 Newly Important Performance Ratios • 5) Marketing Return on Sales, MROS • 6) Return on Marketing Expenses, ROME

4. Four Classic Performance Ratios • 1) Net Profit Returned on InvestmentReturn on Investment, ROI • 2) Gross Profit Returned on Sales RevenueGross Return on Sales, GROS • 3) Dollar Profit per unit Markedup on PriceMarkup on Price, Mp • 4) Net Profit Returned on Sales RevenueReturn on Sales, ROS

5. 2 Newly Important Performance Ratios • 5) Marketing Profit Returned on Sales RevenueMarketing Return on Sales, MROS • 6) Marketing Profit Returned on Marketing ExpenseReturn on Marketing Expenses, ROME

6. Two Factor Marketing Models • All Performance Ratios are part of aTwo Factor Performance Model • Output = Performance Rate x Input

7. Simple Business Machine Input Conversion Process Efficiency = Output/Input Crank Handle Output $ $ $ $ $

8. An Important performance rate for Biz-Café is the Cups Sold per hour • Cups Sold per hour is one factor in a two factor marketing model

9. Cups sold per hour part of a Two-Factor Marketing Model • Output = Conversion Factor x Input Factor • Output = Performance Rate x Input • Quantity of cups sold = cups sold per hour x number of hours • Q = cph x hours • Q = 20cph x 60 hours • Q = 1,200 cups sold

10. Return on Sales, ROS part of a Two-Factor Marketing Model • Output = Conversion Factor x Input Factor • Output = Performance Rate x Input • Net profit = Net profit return on Sales x Sales Revenue • Net profit = ROS x R • Net profit = 30% x $9,000 • Net profit = $2,700

11. Gross Return on Sales, GROS part of a Two-Factor Marketing Model • Output = Conversion Factor x Input Factor • Output = Performance Rate x Input • Gross profit = gross profit return on Sales x Sales Revenue • Gross profit = GROS x R • Gross profit = 90% x $9,000 • Gross profit = $8,100

12. Marketing Return on Sales, MROS Two-Factor Marketing Model • Output = Conversion Factor x Input Factor • Output = Performance Rate x Input • Marketing profit = marketing profit return on Sales x Revenue • Marketing profit = MROS x R • Marketing profit = 50% x $9,000 • Marketing profit = $4,500

13. Return on Investment, ROI Two-Factor Marketing Model • Output = Conversion Factor x Input Factor • Output = Performance Rate x Input • Net Profit= net profit returned on investment x Investment • Net profit = ROI x I • Net profit = 18% x $50,000 • Net profit = $9,000

14. Return on Marketing Investment, ROMI Two-Factor Marketing Model Accounting & Finance are not going to accept advertising and sales force expenses as investments • Output = Conversion Factor x Input Factor • Marketing Profit= net profit returned on marketing investment x marketing Investment • Marketing profit = ROMI x Marketing Investment • Marketing profit = 143% x $2,800 • Marketing profit = $4,000

15. Return on Marketing Expense, ROMETwo-Factor Marketing Model • Output = Conversion Factor x Input Factor • Marketing Profit= marketing profit returned on marketing Expense x marketing expense Marketing profit = ROME x Marketing expense • Marketing profit = 143% x $2,800 • Marketing profit = $4,000 Use Marketing Expense instead of Marketing Investment

16. Yes! you can have efficiencies greater than 100% • BUT they are usually indicating that you have forgotten some important marketing activity or expense • We will return to this issue to re-think what are marketing expenses in the Biz-café game

17. There are thousands of them • You can NOT memorize all the two-factor models in marketing management • There are few common and popular ones • And very useful ones such as • Markup on price