Marketing Arithmetic for

Business Analysis
 Introduction
• The marketing concept stresses profitability as
well as consumer orientation. To achieve this
aim and to accomplish other marketing
objectives, which are often stated in financial
terms, marketing managers need to know how
to evaluate an organization’s financial success.
To do this, they must understand the operating
statement and certain performance ratios from
a marketing perspective.
Marketing arithmetic concepts

• Return on Investment
• Break-even calculations
• Price elasticity
• Profit and loss statement
• Marketing analysis and Performance ratios
• Customer Acquisition Cost (CAC)
 Return on Investment

• Return on investment is the ratio of net profit

to assets of an organizational segment product
line, or brand. It is a measure of financial
efficiency that is often used to set marketing
objectives.
Returns on investment =Net profit/Total assets 
 Break-even calculations

• The point at which costs and revenues meet,

and shows a graphic means for deriving the
break-even point.
Break-even point =Fixed cost/(Selling price-
Variable cost)
 Price elasticity

• Effect of a change in price on the quantity of

product demanded. To determine this quantity
mathematically, we must calculate the ratio of
the percentage change in quantity to the
percentage change in price. Price elasticity is
usually stated without regard to algebraic sign.
E= (Q¹ - Q²)/Q¹
(P¹ - P²)/P¹
 Profit and loss statement
• Essential to interpret whether the organization
or an organizational segment (strategic business
unit, department, product line, or the like) is
making a profit or contributing to profits
Profit = Sales – Costs
• Identifies an organization’s sales revenues and
costs over a given period—typically a year,
quarter, or month.
Marketing analysis and Performance ratio

• Changes in profit and loss statements and

other aspects of an organization’s operations
are often evaluated by use of performance
ratios with their industry’s ratios or with
another company’s ratios to supplement
comparisons with their own past performance
• The Operating or Marketing expenses
ratio is the percentage of expenses needed for
each sales rupee.

• The Gross margin percentage is the

percentage of revenues available to cover
expenses and provide a profit after the cost of
goods sold has been paid.
• Returns and allowances percentage indicates
whether the percentage of sales volume being
returned is large or small or if many
allowances are being given

• Stock turnover ratio, or Inventory turnover

ratio indicates the number of times inventory
(example, a retailer’s stock) turns over (is
sold) during the period specified in the profit
and loss statement
 Customer Acquisition Cost (CAC)
This metric is also known as Cost of Customer
Acquisition (CoCA). This metric could be over
any time period -- a month, a quarter, or a year.
Total Sales and Marketing cost is all the program
and advertising spend, plus salaries, plus
commissions and bonuses, plus overhead.

CAC= Total Sales and Marketing Cost/Number of

New Customers
Thank You!