Cash Rate of Sale, Rate of Gross Profit

The cash rate of sales, which refers to the rate of sales in value terms, and the rate of gross profit can be calculated as follows: $$ \text{Cash Rate of Sales = Selling Price × Rate of Sales} $$ $$ \text{Rate of Gross Sales = Margin × Cash Rate of Sales} $$

Unit, volume, value and profit are the different measures used to express the movement of goods. At an organization, the production, purchasing and logistics teams work with units. For instance, the factory manager for Nescafe needs to know how many jars of coffee need to be produced.

Volume, the measure for the size of the market, is of relevance to the marketing manager. For FMCG products kilogram or litre usually is appropriate.

Some products however are available in different forms. Coffee for instance is available in the form of powder and 3-in-1 sachets. The appropriate measure would be to translate the volume of these forms into an equivalent representing number of cups of coffee.

From a financial standpoint, sales value and profit are of prime importance. Money pays for raw materials and supplies, salaries, taxes, dividends and so on.

Break-up of costs, manufacturer's margin, retailer's margin, taxes etc. from sales of goods.

Exhibit 30.7    Distribution of profit from the sale of goods.

Exhibit 30.7 shows how the $100 selling price for a product gets distributed across the various stakeholders — manufacturer, retailer, suppliers and government. In this example the manufacturer makes a margin of 35%, and the retailer’s gross margin is 10%.

The metric turn × earn sums up the retailing business model, capturing the two main components of retailing — increasing the frequency of inventory turnover (turn) and maximizing margin (earn).

Turn is calculated by dividing the number of units sold by the average inventory (units). Earn is the gross margin.

Categories tend to vary from high-earn and low-turn to low-earn and high-turn. The margin for products with high-turn will tend to be lower than those with low-turn. In FMCG, for instance, retail margins vary from below 10% for fast moving categories like detergents, body wash and cooking oil to over 30% for low-turn products like facial care and expensive wines. This importantly also has a bearing on the roles that product categories, segments, and brands play within a retailer’s product portfolio.

Rate of sale and rate of gross profit comparison - Sales and Distribution.

Exhibit 30.8   Comparison of rate of sale and profit of four shampoo brands.

The example in Exhibit 30.8 illustrates the rate of sale and profit comparisons of four shampoo brands, revealing to the retailer the different roles that these brands are playing. Among the four, Sunsilk is the top brand consumed by shoppers and its gross profit is also greater than that for other brands. It can generate store traffic. Dove on the other hand, is a profit generator; its rate of gross profit is comparable to that for Sunsilk, despite much lower rate of sales.

Previous     Next

Use the Search Bar to find content on MarketingMind.

Marketing Analytics Workshop

Marketing Analytics Workshop

In an analytics-driven business environment, this analytics-centred consumer marketing workshop is tailored to the needs of consumer analysts, marketing researchers, brand managers, category managers and seasoned marketing and retailing professionals.

Digital Marketing Workshop

Digital Marketing Workshop

Unlock the Power of Digital Marketing: Join us for an immersive online experience designed to empower you with the skills and knowledge needed to excel in the dynamic world of digital marketing. In just three days, you will transform into a proficient digital marketer, equipped to craft and implement successful online strategies.

Online Apps to train Category Managers

Online Apps to train Category Managers

The Plannogrammer is an experiential learning facility for category managers, trade marketers, and retailers in consumer markets. Ideally suited for hybrid learning programmes, Plannogrammer imparts hands-on training in the planning and evaluation of promotions and merchandising.

It supports a collection of simulation and analysis platforms such as Promotions and Space Planner for optimizing space and promotions, Plannogram for populating shelves and merchandising, a Due To Analysis dashboard that decomposes brand sales into the factors driving sales, and a Promotion Evaluator to evaluate the volume, value and profit impact of promotion plans.