Copyright © 2001 by Harcourt, Inc. All rights reserved.

PART VI

Copyright © 2001 by Harcourt, Inc. All rights reserved.

 CHAPTER 15

ANALYSIS OF SALES AND

MARKETING COSTS

Copyright © 2001 by Harcourt, Inc. All rights reserved.

LEARNING OBJECTIVES
Control of the marketing program is very important and
is partially achieved by an analysis of net sales volume
and marketing costs. This chapter should help you
understand:
 The importance of marketing and sales audits and
how they differ.
 That misdirected marketing effort can result in a loss
of sales and profit.
 What sales analysis is and what it is used for.
The important elements involved in marketing cost
analysis.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
 MARKETING AUDIT

The marketing audit is an evaluation tool

designed to appraise the entire marketing
operation in a systematic and
comprehensive manner.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

SALES FORCE AUDIT

A sales force audit involves the same six factors

the marketing audit measures but is designed to
evaluate selling strategy and to improve overall
sales force effectiveness.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Some questions a sales force audit answers:

1. Are motivational techniques contributing to

overall goals?
2. What are the target market’s characteristics,
and how is the company/ the competition
responding to them?
3. What are the product line’s characteristics,
and how competitive are the product lines
and sales policies of salespeople?

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Some questions a sales force audit answers:
continued

1. Are adequate controls available to direct

the selling effort?
2. How well defined are the sales strategies,
and how effectively are they contributing
to the sales division’s objectives?

Copyright © 2001 by Harcourt, Inc. All rights reserved.

The 80/20 or “concentration” principle
states that the majority of a company’s
sales (or profits) may result directly from a
very small number of the company’s
accounts, product or price lines, or
geographic areas.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

DIRECTING THE MARKETING EFFORT

Marketing dollars must be allocated in a way

that best generates high sales volume and net
profits by concentrating marketing effort in the
most profitable areas.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Iceberg Principle

The iceberg principle refers to the effect that

averaging, summarizing, and aggregating data
can have on presenting the true sales or profit
picture and underlying problems.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Analysis is necessary to uncover the reason
for poor performance:

1. Was the quota set too high?

2. Are salespeople having trouble with a
particular product line?
3. Can the problem be narrowed down to a
particular salesperson, sales district,
product, or price line?
4. Do any sales divisions or districts have
poor management?
Copyright © 2001 by Harcourt, Inc. All rights reserved.
NET SALES VOLUME ANALYSIS

WHAT IS SALES ANALYSIS?

Sales analysis is the detailed examination of a
company’s sales data and involves assimilating,
classifying, comparing, and drawing conclusions.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Accumulation of Sales Analysis
Information
• Product lines
• Geographic areas
• Customer classes
• Order sizes
• Time periods
• Methods of sale
•Organizational units
• Salespeople

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Uses of Sales Analysis
• Establishment of the sales forecasting system.
• Development of sales performance measures.
• Evaluation of market position.
• Production planning and inventory control.
• Maintaining appropriate product mixes.
• Modifying the sales territory structures.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Use of Sales Analysis continued

• Planning sales force activities.

• Evaluation of salespeople’s performance.
• Measuring the effect of advertising and other
sales promotional activities.
• Modifying channels of distribution.
• Evaluating channels of distribution.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

ANALYZING SALES VOLUME

Total sales volume is the first indication of how

the company is faring in the marketplace.

Retail sales index is a relative measure of the

dollar volume of retail sales that normally occur
in each respective district.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

 MARKETING COST ANALYSIS
WHAT IS MARKETING COST ANALYSIS?
Marketing cost analysis, or distribution cost
analysis, is the analysis of costs that affect sales
volume, with the purpose of determining the
profitability of different segment operations.

Profitability is determined by sales volume and

its associated costs and expenses.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Marketing costs analysis can be invaluable
in determining answers to these questions:
• Which customers/accounts are unprofitable
because of order size or geographic location?
• What is the minimum order size that can be
filled profitably?
• Which distribution channel will be the most
profitable for the firm to use?
• Which territories are potentially most
profitable?

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Marketing costs analysis can be invaluable
in determining answers to these questions:
continued

• What profit contribution does each

salesperson make?
• Can cost improvements be made in physical
distribution facilities?
• Which product lines are unprofitable or could
be improved in their profitability?

Copyright © 2001 by Harcourt, Inc. All rights reserved.

USES OF MARKETING COST ANALYSIS

• An integral part of the decision-making

process.
• Serves as the basis for management
decisions.
• Accountability.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

OBJECTIVES OF MARKETING COST
ANALYSIS

The major objectives of marketing cost analysis

are to determine the isolated contributions made
to profitability and to evaluate the efficiency of
all phases of the company’s marketing structure
in terms of corporate goals and objectives.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Two important uses of marketing cost
analysis are:

1. Determining which marketing strategies

are the best.
2. Isolating problem areas.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

ASSIGNING MARKETING COSTS

Marketing vs. Production Costs

A production cost is the cost incurred by
processing a product from its raw elements to a
finished state.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Marketing, or distribution costs, can be
broken down into two distinct categories:

• Costs incurred by getting orders.

• Costs incurred by filling orders.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

FIGURE 15.1 CATEGORIES OF MARKETING COSTS

Marketing (Distribution) Costs

Order-Getting Costs Order-Filling Costs

• Direct Selling • Physical Distribution
• Sales Promotion Shipping
• Advertising Transportation
• Market Research Warehousing
• Sales Promotion Material Handling
• Administrative • Credit and Collection
• Administrative

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Functional marketing groups are groups
within the marketing operation that
perform similar functions.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

METHODS FOR DETERMINING
PROFITABILITY

With the full cost (or net profit) approach, all

costs (variable and fixed) are allocated among
the market segments using the categories of
goods sold (production costs) and operating
expenses (nonproduction costs, including
marketing costs).

In the contribution margin approach, costs are

separated according to controllability.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Commonly Used Cost Classifications

• Direct cost
• Indirect cost
• Fixed cost
• Variable cost
• Standard cost
• Controllable cost
• Uncontrollable cost

Copyright © 2001 by Harcourt, Inc. All rights reserved.

TECHNIQUES OF COST ANALYSIS

1. Direct expenses are measured and assigned

to their respective segments.
2. Indirect expenses are allocated to functional
cost groups.
3. Assignable fixed costs are included in the
functional cost groups.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

TECHNIQUES OF COST ANALYSIS continued

1. A variable activity is chosen for a cost

allocation basis, and total variable activity is
measured.
2. The variable-activity share of each of the
functional cost groups is noted.
3. A segment’s relative profitability is
determined by gross margin less direct
expenses and costs assignable to functional
cost groups.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

Productivity may be increased for marketing
operations in three ways:

1. Sales increases
2. Cost reductions
3. Eliminate or reduce emphasis on
unprofitable products

Copyright © 2001 by Harcourt, Inc. All rights reserved.

PROBLEMS IN COST ANALYSIS

• Less exact than managerial cost.

• Constrained by the marketing manager’s
limitations.

Copyright © 2001 by Harcourt, Inc. All rights reserved.

 THE BOTTOM LINE
Net sales volume analysis and marketing cost analysis are
useful to the marketing manager for planning and
controlling the marketing program.
A marketing audit is a systematic appraisal of the
marketing operations as a whole, which aids in effective
control and in developing new strategies.
Misdirected marketing effort occurs when management
ignores the effects of the 80/20 and iceberg principles.
Sales analysis is the detailed analysis of a company’s sales
data and may incorporate breakdowns by account,
customer class, territory, product line, and other categories.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
 THE BOTTOM LINE
Sales volume analysis alone is insufficient as a basis for
marketing decisions.
Marketing cost analysis is primarily concerned with
marketing costs.
Commonly used cost classifications include direct versus
indirect costs, fixed versus variable costs, standard costs,
and controllable versus uncontrollable costs.
Two separate approaches may be taken for determining
aggregate or segment profitability: full cost or contribution
margin.
The productivity of marketing operations can be increased
by minimizing unit costs and maximizing net profit.
Variance analysis is useful for cost control.
Copyright © 2001 by Harcourt, Inc. All rights reserved.