Basic Marketing Math Formulas
These marketing math formulas will help your marketing ROI
• Identify economic factors that drive marketing profit and loss
• Calculate break even and profit or loss using costs and factors right for your business
• Establish what metrics are the best measures of success
• Ascertain what your customers are worth and how much to spend to acquire new ones
• Track responses in all media, including the Internet.
• Determine which statistical formulas to apply to predict future behavior
You’ll need only basic arithmetic: +, -, x, and ÷. No complex math here – just practical tools presented in a language anyone can understand
Anyone who needs to understand what makes a direct marketing program financially viable. These formulas will prove invaluable to you if you’ve recently begun working in any of the following functional areas of direct marketing:
*Marketing * Analysis * Accounting* Advertising
You will also benefit if you’re a professional working for any of the following support firms serving direct marketers:
*Advertising Agencies * Printers * Service Bureaus * List Brokers
Marketing Math Basics
Cost of Goods Sold
COGS = Beginning Inventory + Purchases – Ending Inventory
Gross Margin
Gross Margin = Total Sales – Cost of Goods
Gross Margin Return on Investment
GMROI = Gross Margin $ ÷ Average Inventory Cost
Initial Markup
Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions)
Inventory Turnover (Stock Turn)
Turnover = Net Sales ÷ Average Retail Stock
Maintained Markup
MM $ = (Original Retail – Reductions) – Cost of Goods Sold
MM % = Maintained Markup $ ÷ Net Sales Amount
Margin %
Margin % = (Retail Price – Cost) ÷ Retail Price
Markup
Markup $ = Retail Price – Cost
Markup % = Markup Amount ÷ Retail Price
Net Sales
Net Sales = Gross Sales – Returns and Allowances
Open to Buy
OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory
Percentage Increase/Decrease
% Increase/Decrease = Difference Between Two Figures ÷ Previous Figure
Quick Ratio
Quick Ratio = Current Assets – Inventory ÷ Current Liabilities
Reductions
Reductions = Markdowns + Employee Discounts + Customer Discounts + Stock Shortages
Sales per Square Foot
Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space
Sell-Through Rate
Sell-Through % = Units Sold ÷ Units Received
Stock to Sales Ratio
Stock-to-Sales = Beginning of Month Stock ÷ Sales for the Month
Break Even Analysis
Gross Profit Per Sale
Average Order Size MINUS direct product costs per order $89 – $49 = $40
Break even Quantity
Total $ Marketing Cost / Gross Profit Per Sale $50,000 / $50 = 1,000 orders needed to recover the marketing costs.
Breakeven Response Rate
Breakeven Quantity / # Reached 1,250 / 65,000 = 1.92% • Only incremental revenue and costs of a sale are considered, without overhead and profit requirements