Name: 

In addition to market share targets (covered in the Marketing Math Questions for Chapter 5), marketers often set sales or profitability targets. These targets are related to the profit and loss statements prepared for each brand or business unit by a firm’s Accounting Department.  Thus, sales and profit targets are typically stated in dollar terms. 

Sales

There is a direct relationship between a brand’s desired market share and its sales targets.  Both are based on the brand’s size or volume, i.e. the number of units sold, the number of cases sold, or the number of transactions done on the business during a given year.  As noted earlier, the formula for market share is:

=   Brand share (percentage of market size).  

The formula for calculating sales is:

      Brand size estimate for one year (in terms of number of people or cases or units)
X   Price charged to the customer for the product
=    Sales dollars for the year (also known as sales revenue).

Calculate the following based on the above sales formula.

If Procter & Gamble sells 1,950,000 cases of Tide detergent to retailers in a year at an average case price of $29.50, what is Proctor Gamble’s revenue from Tide in that year?

If the Cosmopolitan Bearing Company sells 33,350,000 small bearings at a price of 5 cents a year, what is its sales revenue in small bearings for the year?

If  the Cosmopolitan Bearing Company also sells 29,678,000 large bearings at a price of 8.5 cents a year, what is its sales revenue in large bearings for the year?

Profit

Profit is the portion of sales revenue left over after the costs of doing business (the costs associated with employee salaries, office maintenance, research and development, production, distribution, marketing, legal fees, and so forth) have been deducted from  sales revenue.  Sales revenue is known as the “top line” and profit is known as the “bottom line” because they are literally the first line and the last line of a profit and loss statement.

The formula for calculating profit is:

      Brand sales revenue in dollars for one year
–    All of the costs of doing business
=    Profit dollars for one year

An important calculation usually made at the same time that profit is determined is called profit margin.  Profit margin is a percentage of sales revenue.

The formula for calculating profit margin is:

      Profit dollars for one year
/    Sales revenue for the same year
=    Profit margin (profit as a % of sales)
  
Calculate the following using the above formulae. You’ll need to use the sales revenues that you calculated for questions 1–3.

If it costs Procter & Gamble $50,334,000 a year to produce and market Tide detergent (including its share of costs like employee salaries and office maintenance that are not brand-specific), how much profit does Tide make in a year and what is its profit margin?

If it costs the Cosmopolitan Bearing Company  $1,254,000 to produce and market the small bearings that it sells in a year, what is its profit on small bearings for the year and what profit margin does this represent?

If it costs the Cosmopolitan Bearing Company $1,758,000 to produce and market the  large bearings that it sells in a year, what is its profit and profit margin on large bearings for a year?

Assuming that Cosmopolitan only sells small and large bearings, what are total company sales and profit in a year?

What is the company’s total profit margin?

If you were setting Cosmopolitan’s sales and profit targets for next year, would you estimate that most of its sales and profits will come from the small bearings portion of its business?