Mastering the art of marketing

Creating Your Financial Plan

Everything you need to know to build your

business plan and ensure your brand’s

financial wellbeing

The buck stops here with YOU! As a brand or product manager, you are

responsible for the brand’s P&L performance, generally through the Operating Profit level.

Let’s learn everything you need to know to build your brand’s profit picture and prepare your business plan financials: Cost of Goods Sales

Sales forecast

Pricing policy and plan

Profit margins

Sales budget

Sales and marketing budgets

Operating Profit

How much does it cost to make?

Your Direct Variable Cost is the cost to produce one additional item

This is generally composed of: Raw materials Primary packaging material – the packaging your product

touches – bottle, bag, can, box, etc. Secondary packaging material – carton containing multiple

packages, totes, etc. – divided by the number of products inside Direct labor – cost of employees’ payroll to prepare, produce,

package and warehouse your product Direct supplies - tape, stickers, envelopes, instructions, etc. Direct utilities - only if easily accountable for a single item A calculation for waste – generally 1 – 3%

This is called your Cost of Goods Sold or COGS

Direct Variable Costs = COGS

For illustration purposes only

Item Image Unit Cost 16 oz 12 oz 8 oz# gms ground coffee per cup $0.03/gram 20 15 10

Coffee cost per cup $0.60 $0.45 $0.30

Filtered water $0.01/4 oz $0.04 $0.03 $0.02

Electricity to heat water $0.01 $0.01 $0.01 $0.01

Cup $0.17 $0.16 $0.15

Sleeve $0.01 $0.01 $0.01 $0.01

Lid $0.02 $0.02 $0.02 $0.02

3 minutes labor at $15/hr $0.75 $0.75 $0.75 $0.75

TOTAL VARIABLE COST $1.60 $1.43 $1.26

Cost of a Cup of Brewed Black Coffee

Now that you know how much your product costs to make, you need to calculate the sales price.

To set prices, you need to understand three key things:

1. What competitors are selling their product for2. Your pricing strategy in relation to competition3. The costs of your sales and distribution system

PRI₵ING

How Much Do Competitors Charge?

Study what your key competition charges, and what their pricing strategy is. Then by analyzing your competitive advantages, you can figure out what your pricing strategy should be.Calculate your index by dividing your price by the average price X 100.

Retailer Retailer NameVolume

SOM$ Revenue

SOMPrice 12 oz

Medium CupIndex to Average

Strategy

McDonalds 14.3% 13.1% $1.99 77 Discount

Dunkin Donuts 13.8% 12.5% $2.99 115 Premium

Starbucks 11.8% 11.9% $3.49 135 Premium

7-11 6.8% 7.9% $1.89 73 Discount

46.7% 45.5% $2.59 100 Average

All Others 53.3% 54.5%

100.0% 100.0%

SUBTOTAL BIG 4

TOTAL ALL RETAILERS

Sales & Prices by Leading Brewed Coffee Retailers

McDonalds and 7-11 use coffee as a loss leader to drive overal breakfast traffic.

Coffee is a main offering at Starbucks and 7-11 and is priced at a constant premium price

with few price discounts.

For illustration purposes only

Choose Your Price StrategyStudy what your competition charges, and what their pricing strategy is. Then by analyzing your competitive advantages, you can figure out what your pricing strategy should be.

You have decided to price at a premium

level similar to Starbucks

Retailer Retailer NameVolume

SOM$ Revenue

SOMPrice 12 oz

Medium CupIndex to Average

Strategy

McDonalds 14.3% 13.1% $1.99 77 Discount

Dunkin Donuts 13.8% 12.5% $2.99 115 Premium

Starbucks 11.8% 11.9% $3.49 135 Premium

7-11 6.8% 7.9% $1.89 73 Discount

46.7% 45.5% $2.59 100 Average

All Others 53.3% 54.5%

100.0% 100.0%

SUBTOTAL BIG 4

TOTAL ALL RETAILERS

Sales & Prices by Leading Brewed Coffee Retailers

McDonalds and 7-11 use coffee as a loss leader to drive overal breakfast traffic.

Coffee is a main offering at Starbucks and 7-11 and is priced at a constant premium price

with few price discounts.

For illustration purposes only

Gross Profit Margin To calculate your Gross Profit or Gross Margin, subtract the

Cost (COGS) from the Sales Price. Calculate the Gross Profit Percentage by dividing the Gross

Profit $ by the Sales Price. Most businesses operate on a Gross Profit Margin of 50% or

more to be profitable. That means the product is priced at least double the COGS.

For illustration purposes only

PRODUCT SKU PRICE COST

$ %8 OZ $3.00 $1.26 $1.74 58%

12 OZ $3.50 $1.43 $2.07 59%16 OZ $4.00 $1.60 $2.40 60%

GROSS PROFIT

If you take your product to market through a 3rd party distribution

system, you may need to calculate prices and margins differently

Each Link in Your Distribution Chain Must Profit

When you use middlemen to distribute your product, each organization must make their customary profit margin or they will not sell your product.

Each product category, class of trade, and type of distribution has different markups and corresponding margins.

This will add costs to your finished product, or reduce your profits, or both.

MARKUP vs. MARGIN MARKUP is the % of the cost that your customer adds

to create his selling price. Markup is calculated bottom up starting with the cost. Most retailers double their cost to reach a final price.

This is called Keystoning (creating a Keystone).

Example: The retailer buys your product for $1.00. He will mark it up by 100%, doubling price, to sell for $2.00. Thus the MARKUP is 100%.

MARGIN is the percentage of the final price that is the profit you will earn – sales price less costs.

This is calculated top down, starting with the final price.

Same Example: The retailer sells the product for $2.00. He paid $1.00, so his profit margin is $1.00. His MARGIN is half the final price, or 50%.

How will you DISTRIBUTE to your customers?

Retailer• You sell and ship directly to

your retailer or end customer.

• Or your product reaches the retailer through a wholesaler or a distributor.

• The retailer will mark up the product at least 100% - that is called keystoning.

• Most retailers MARK UP products 100% or more. That’s a 50% MARGIN.

Wholesaler• You sell to a wholesaler who

stocks thousands of products and brands.

• When your customers want your product ,they will order it from the wholesaler.

• The customer may pick up at the wholesaler’s location, or receive the product shipped to the warehouse for the retailer’s staff to merchandise on the shelf.

• The wholesaler will not proactively present or sell your product - they just take orders.

• They will MARK UP products 10 – 15%.

Distributor• A distributor will proactively

sell your product into the account and will generally deliver the product to the store, and then merchandise the product on the shelf.

• Depending upon the extent of service they produce, the Distributor will MARK UP the product between 35% and 50%, depending on the service they provide - that’s a 25 - 33% MARGIN.

+ 10–15%markup

+ 100%markup

+ 35-50%markup

Understand the Markups and Retail Margins

50% margin=+100%

33% margin=+50%

markup

50% Margin

=+100% markup

SRP

16

Your Cost Your Sales Retail Price$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50

$1.00

$2.00

$4.00

Direct Sales to Retailer

50% Margin

=+100% markup50%

Margin=+100% markup

If you are able to sell direct to a retailers without a distributor, you can generally have a lower SRP (Suggested Retail Price) and/or higher margin while keeping a moderate SRP.

However, distributors offer retailers value-added services, and retailers may demand that your product or category be brought in by a preferred distributor.

To be competitive,

you often start at SRP and work

backwards. This product will probably

retail at $3.99.

Understand the Markups and Retail Margins

$1.00

$2.00

$3.00

$6.00

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Your cost Your sales Distributor sales Retail sales

Sales Through a Distributor

Sales Price

50% margin=+100%

33% margin=+50%

markup

50% Margin

=+100% markup

To be competitive,

you often start at the SRP and

work backwards. This product will probably

retail at $5.99.

SRP

17

A distributor will provide valuable services to you and the retailer, and will increase the SRP through additional margin.

PRODUCT PRICE JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL %

8 OZ $3.00 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 41%

12 OZ $3.50 750 750 750 750 750 750 1,000 1,000 1,000 1,000 1,000 1,000 10,500 36%

16 OZ $4.00 500 500 500 500 500 500 500 500 500 800 800 800 6,900 23%

TOTAL VOLUME 2,250 2,250 2,250 2,250 2,250 2,250 2,500 2,500 2,500 2,800 2,800 2,800 29,400 100%% OF TOTAL 8% 8% 8% 8% 8% 8% 9% 9% 9% 10% 10% 10% 100%

YEAR 1 SALES FORECAST - UNITS PER MONTH

Monthly Volume Forecast and Mix

1. Create a spreadsheet for the year.2. Enter the SKUs or individual products on the left3. Add forecast number of units for each month and each SKU in your

product mix.4. Calculate the percentages of sales by month (row) and mix of sales by

SKU (column).5. This is your sales volume forecast.

This is your product MIX

This is your % sales by month

For illustration purposes only

PRODUCT PRICE JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL %8 OZ $3.00 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $36,000 36%12 OZ $3.50 $2,625 $2,625 $2,625 $2,625 $2,625 $2,625 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $36,750 37%16 OZ $4.00 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $3,200 $3,200 $3,200 $27,600 28%

TOTAL SALES $3.41 $7,625 $7,625 $7,625 $7,625 $7,625 $7,625 $8,500 $8,500 $8,500 $9,700 $9,700 $9,700 $100,350 100%% OF TOTAL 8% 8% 8% 8% 8% 8% 8% 8% 8% 10% 10% 10% 100%

YEAR 1 SALES FORECAST - SALES REVENUE PER MONTH

Sales Revenue Calculation Multiply the unit Sales Price by the volume for each month

from the volume sheet and enter it in the corresponding cell. Your Revenue Mix will be different from your Volume Mix, as

higher-priced items will represent a greater percentage of total sales.

Divide total sales revenue ($100,350) by the number of total units sold (29,400) to get your average sales price ($3.41).

Enter Total Sales on your Pro Forma P&L line 1 as Gross Sales.

This is your revenue MIX

This is your % average sales

per unitFor illustration purposes only

SALES AND GROSS PROFIT FOR P&LPRODUCT SKU # UNITS PRICE REVENUE COST COGS GROSS PROFIT PROFIT

$ % MIX %

8 OZ 12,000 $3.00 $36,000 $1.26 $15,120.00 $20,880 58% 35%

12 OZ 10,500 $3.50 $36,750 $1.43 $15,015.00 $21,735 59% 37%

16 OZ 6,900 $4.00 $27,600 $1.60 $11,040.00 $16,560 60% 28%

TOTAL 29,400 $100,350 $41,175.00 $59,175 59% 100%

Sales and Margin for Your P&L This shows total year sales, COGS, and corresponding Gross

Profit. You will want to know what the Gross Profit % is to make sure

each product delivers adequate profits. Your Profit Mix shows what % of total Gross Profit came from

each SKU. On your Pro Forma P&L, enter Revenue on Line 1 (Gross

Sales), COGS on line 4, and calculate the Gross Margin on Line 5.

For illustration purposes only

This is the gross profit % each

product or SKU generates

This shows how much each SKU

contributes to total gross profit

Let’s Start Building Your Pro Forma P&L

Enter lines 1 Gross Sales and COGS 4 from your last worksheet. Calculate Returns & Allowances – line 2 For new product, expect high Year I Sales and Marketing expenses as

a % of sales. In Year 2, they should drop

Line Description $ % Notes1 Gross Sales $100,350 100%2 Less 2% Returns & Allowances $2,007 2% 2% standard, may vary by industry3 = Net Sales $98,343 98%4 Less COGS $41,175 41%5 = Gross Margin $57,168 57%

6 Less 10% Sales Expenses $10,035 10% Range from 5 - 10% of Gross Sales7 Less 10% Marketing Expenses $10,035 10% Range from 5 - 10% of Gross Sales8 = Operating Profit $37,098 37% Genrally marketing is responsible to here

9 Less 15% General & Admin $15,053 15%

10 = EBITDA = Bottom Line $22,046 22% Earnings before Interest, Taxes, Depreciation and Amortization

Year 1 Pro Forma P&L

For illustration purposes only

Here is Your Monthly Pro Forma P&L

All these templates are available in your Excel file. We’ve even locked the formulas so you can accidently erase

them! The password to unlock the formulas is sb2015 – use it

carefully as rebuilding all the formulas is a pain!

For illustration purposes only

Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total %Gross Sales -$ 100% Less 2% Returns & Allowances -$ #DIV/0!= Net Sales -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ #DIV/0! Less COGS -$ #DIV/0!= Gross Margin -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ #DIV/0!

Less 10% Sales Expenses -$ 10% Less 10% Marketing Expenses -$ 10%= Operating Profit -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ #DIV/0!

Less 15% General & Admin -$ #DIV/0!

= EBITDA = Bottom Line $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - #DIV/0!

Year 1 Pro Forma P&L - By Month

Calculating Sales Expenses

23

Sales expenses may include: Salaries and commission of all sales personnel and sales

management 35% employee burden over salaries and commissions

7.5% Social Security tax (employee pays matching 2.5%) 2.5% Medicare tax (employee pays matching 2.5%) Workman’s Comp and unemployment insurance Health, vision, dental and other insurance and employee benefits 20 –

25% of salaries

Travel, conference, conventions, meetings, trade shows Sales incentives for sales force and brokers and distributors Sales materials, brochures, collateral, contests, etc. targeted

to sales and distributionDepending on the industry and business model, Sales Expenses may average 5-10% of Gross Sales, higher if sales force is commission-only.

How will you SELL to your customers?

24

Direct Sales Force• You hire and pay your own sales

force as company employees

• Generally they are salaried with some commission element

• Good sales managers cost at least $75 - $100K per year in salary and bonuses

• You pay travel, communication, office, and other expenses

• In rare occasions you can find a sales team to work on a pure commission basis, with a high commission rate

• This is a huge fixed expense

• You will also be responsible for 35% employee burden – Social Security and Medicare taxes, medical insurance, workman’s comp, vacation and sick days, 401K and other fringe benefits.

Manufacturer’s Rep

• You contract with an individual or firm to represent you on a category-exclusive basis to clients.

• You pay a sales commission of 5-10% of invoiced sales.

• You may have to pay a monthly fee for a period of time to cover start up expenses.

• They generally represent a number of different non-competitive manufacturers serving the same industry or class of trade.

• They generally pay own expenses, although you may have to pay for expenses to conventions or sales meetings

• They will call on distributors, wholesalers and retailers

Broker• Similar to a Manufacturer’s Rep,

but with a much large portfolio of brands and manufacturers.

• You pay a sales commission of 2-3% of invoiced sales.

• You may hire a master broker who will manage the network of brokers to cover all classes of trade and key accounts for a 2-3% override.

• You may have to pay a monthly fee for a period of time to cover start up expenses.

• They generally pay own expenses, although you may have to pay for expenses to conventions or sales meetings

• They will call on distributors, wholesalers and retailers

• You have to have someone who managers your broker network

Sales costs are generally 5 – 10% of gross sales and are shown below the Gross Profit line

How much to invest in marketing?

Rule of Thumb Established brands

Maintain current SOM – 5% of sales Grow share - 10% of sales

New brands Often 30 – 50%+ of year 1 sales 50 – 90% national brands

25

Create Detailed 3-month Launch Program

Media/ Month 1 2 3 Description of Program TOTAL % of total

TV/ Radio $0

Print $0

OOH $0

Digital $0

Other Media $0

Agency/ production $0

$0 $0 $0 $0 #DIV/0!Off-invoice Allowances $0

Coupons $0

Sampling $0

Contests $0Brochures &

collateral $0

Free samples $0

Racks and displays $0

Other $0

$0 $0 $0 $0 #DIV/0!

Qualtitative $0

Quantitative $0

Syndicated $0

Tracking Study $0

Other Research $0

$0 $0 $0 $0 #DIV/0!

PR agency fees $0

Press conf or event $0

Media releases $0

Travel and junkets $0

Other PR $0

$0 $0 $0 $0 #DIV/0!

$0 $0 $0 $0

TOTAL RESEARCH

PR

, M

ed

ia R

ela

t

TOTAL PR & MEDIA RELATIONS

TOTAL MARKETING

3 MONTH LAUNCH PROGRAM AND BUDGET - DETAILED

Ad

ve

rtisi

ng

TOTAL ADVERTISING

Co

nsu

me

r P

rom

oti

on

s

TOTAL PROMOTIONS

Ma

rke

t R

ese

arc

h

On spreadsheet, enter program, duration, and cost for each of the 3 launch months.What % of Yr 1 sales will you invest in launch program?

Build Your Ongoing Yr. 1 Marketing Budget

Media/ Month 1 2 3 4 5 6 7 8 9 10 11 12 TOTAL % of total

TV/ Radio $0

Print $0

OOH $0

Digital $0

Other Media $0

Agency/ production $0

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 #DIV/0!Off-invoice Allowances $0

Coupons $0

Sampling $0

Contests $0Brochures &

collateral $0

Free samples $0

Racks and displays $0

Other $0

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 #DIV/0!

Qualtitative $0

Quantitative $0

Syndicated $0

Tracking Study $0

Other Research $0

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 #DIV/0!

PR agency fees $0

Press conf or event $0

Media releases $0

Travel and junkets $0

Other PR $0

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 #DIV/0!

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Mar

ket

Re

sear

ch

TOTAL RESEARCH

TOTAL PR & MEDIA RELATIONS

TOTAL MARKETING

PR

, Me

dia

Re

lat

YEAR 1 MARKETING EXPENSE

Ad

verti

sin

g

TOTAL ADVERTISING

TOTAL PROMOTIONS

Co

nsu

me

r P

rom

oti

on

s

Understand Overhead Expenses

Overhead expenses : All costs on the income statement except for Direct Variable Costs -

direct labor, direct materials, and direct expenses.  Overhead expenses include costs for running the factory,

warehousing, supervision, management, training, etc. They include accounting fees, insurance, interest, legal fees, labor

burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities.

Generally, overhead costs are allocated on a percentage basis to an entire production line or process based on the percentage of sales, production volume or other quantifiable metric.

Generally, overhead costs are outside of the control and responsibility of the marketing manager.

Depending on the industry, they generally vary between 2 and 5% of sales

As a marketer, you will generally work with Direct Variable Costs and controllable expenses down to a Marginal Contribution level

Calculating G&A Expenses

29

While the brand P&L will include G&A expenses, Marketing is generally not responsible for expenses below the Operating Profit line (after Sales and Marketing expenses).General & Administrative (G&A) expenses may include: All other salaries (Executive, Operations, Supervisors, etc. + 35%

burden) Rent and lease Utilities Accounting and legal fees Interest and bank fees Office supplies Insurances Other general and administrative expenses not included in COGS,

Marketing and Sales expenses

G&A expenses will vary by industry, but may range between 5 and 15% of Gross Sales.

Establishing Performance Metrics

You will need to establish ways to measure your performance to the established Objectives.

Key Performance Metrics you may consider are:1. Share of Market – SOM – volume and revenue2. % of sales budget achieved by month and YTD

(volume and resulting gross revenue)3. % COGS vs. budget4. Gross Margin % vs. budget5. Operating Margin % vs. budget

Summary You now know everything you need to

complete your marketing plan financials. Use the attached Excel worksheet and

template to input your data. The formulas are protected so you can’t

accidentally erase them!

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