Finance terms for sales and marketing folks. Should be easily understandable with examples. Also tips to improve sales and probitability.

2. Objectives
 Financial Acumen
 Effective decision-
making
 Sales personnel to a
businessman

3. Why do Company exits
To make profits
To maximize shareholder’s returnTo deliver back to society
To pay taxes
To pay salaries and other
expense
To provide employment
Why do any company exits ??
To maximize all Stakeholder’s return (Patient ,
Investor , Employees, Supplier and customer)

5. Financial Statements
A written report of the financial condition of a
company. Financial statements include

6. Financial Statements
Profit & Loss Account : A period statement showing income and
expenditure we have earned or expended during a given period.
Period can be of one month , Quarter or a year
Balance Sheet : A position statement showing assets and
liability which we own or owed as on a date. It reflects the net
worth of a business/individual.
Cash Flow : A Statement showing flow of cash (in and out ) of
Business and reflects the amount of money a business has
earned (quality of earnings).
Cash flow is derived from Profit and Loss account and Balance
sheet

7. Sample P&L – Listed Company

8. 8
Profit and Loss Statement
Accounting of sales, expenses,
and net profit for a given period.
Within Company, the reference
periods are the month, quarter,
and fiscal year (Jan 1 to Dec 31)
Financial Statement that indicates profitability of a business
Revenue
/ Sales
Cost /
Expenses
Profit

9. 9
What are Company Sales?
How are sales calculated?
Selling Company products & services to third party
customers
 Sales = Sales Price per Unit x Number of Units Sold
Sales
What is ASP
• ASP is Average selling price by product code.
Q. If ASP drops , how will that impact
A) Sales B) Profit C) Cost

10. 10
10
Standard Cost
What does Cost means?
 Total cost to purchase 1 unit of product
How do we calculate Cost
For distributed products, Standard Cost includes:
 Manufacturing cost provided by our Intercompany Plants
 Plus cost of inbound freight ( freight from plant to warehouse)
 Plus Duty ( wherever applicable)
For a manufactured product the Cost generally includes
 Raw materials
 Direct Labor
 Overheads

11. 11
What is Gross Profit
Gross Profit
Margin earned before incurring indirect cost to sell
Gross Profit % = GP expressed as a % of Sales
Product A has GP % of 60% . Next year cost will increase by
10% .To maintain the same GP% what should be the ASP
increase %?
Interpretation of GP%
An GP% of say 50% means
Out of $100 sales $50 reflects Gross Profit earned OR
Out of $100 sales $50 reflects the amount from where SG&A will
be incurred

12. 12
Expenses relating to sales and marketing of products
All indirect spending
SG&A Examples
 Payroll & Employee Programs
 Travel & Entertainment
 Grants
 Marketing & Promotional expense
 Professional Services
 Depreciation
Selling ,General &
Administrative Expenses /Opex
SG&A % = SG&A expressed as a % of Sales
Interpretation of SG&A%
An SG&A % of say 10% means
Out of every $100 sales $10 is spend on sales and marketing of
the product or other indirect spending

13.  Manufacturing Cost (In Case of
manufacture)
 Raw Material
 Packing Material
 Labour Cost
 Mfg Overheads
 Freight & Duty Cost
 Purchase Cost (in case of trading)
 Primary & Secondary Freight
 Discards
 Depreciation on Placed assets
Indirect CostDirect Cost
 Salaries & related
 Travelling Cost
 Training Cost
 Grants & promotion Cost
 Professional
 SFE
 Warehousing and CFA cost
 Administration Cost
 Depreciation
 Function Cost

14. 14
Pretax Profit/PTOP
Profit after all expenses (before government taxes )
which is used for share holders dividend or for future
investments
Pre Tax % = Profit expressed as a % of Sales
Interpretation of Pretax % : A pretax % of say 40% means
Out of every $100 sales $40 is final profit (before payment of
taxes) which is free for distribution to share holders

15. Sales
Selling Price
Units
Product -
Volume Mix
Hospital
Margin
Distributor
/Liaison
Commission
Factors Affecting Sales

16. How to Increase Sales?
Increase
Volume
Increase
Price
Margins

17. USD K P&L Variance
Qty 16.5 1.5
ASP 10 -
Sales 165 15
SGP 69 6
% to Sales 42% 0%
OV 6 (1)
AGP 63 6
% to Sales 38% 0%
Direct Marketing 24 -
Direct W&D 6 (1)
Direct G&A 3 -
Opex 32 (1)
% to Sales 19% 1%
Ops Profit 31 5
% to Sales 19% 2%
Impact of Volume Increase
+10%
+10%
+10%
USD K Original
P&L
Qty 15
ASP 10
Sales 150
SGP 63
% to Sales 42%
OV 6
AGP 57
% to Sales 38%
Direct Marketing 24
Direct W&D 5
Direct G&A 3
Opex 31
% to Sales 21%
Ops Profit 26
% to Sales 17%

18. USD K P&L Variance
Qty 15.0 -
ASP 11 1.0
Sales 165 15
SGP 78 15
% to Sales 47% 5%
OV 6 -
AGP 72 15
% to Sales 44% 6%
Direct Marketing 24 -
Direct W&D 5 -
Direct G&A 3 -
Opex 31 -
% to Sales 19% 2%
Ops Profit 41 15
% to Sales 25% 8%
+10%
USD K Original
P&L
Qty 15
ASP 10
Sales 150
SGP 63
% to Sales 42%
OV 6
AGP 57
% to Sales 38%
Direct Marketing 24
Direct W&D 5
Direct G&A 3
Opex 31
% to Sales 21%
Ops Profit 26
% to Sales 17%
Impact of ASP Increase
18
18
Increase in ASP directly flows to our Profits

19. Impact of Discount / Free Samples
USD K Original
Qty 10
ASP 15
Sales 150
Sales Discount 0
Cost 87
SGP 63
% to sales 42%
OV 6
AGP 57
% to sales 38%
Opex 31
% to sales 21%
Operating Profit 26
% to sales 17%
USD K Discount @ 10% Variance
Qty 10 -
ASP 15 -
Sales 150 -
Sales Discount 15 15
Cost 87 -
SGP 48 (15)
% to sales 32% -10%
OV 6 -
AGP 42 (15)
% to sales 28% -10%
Opex 31 -
% to sales 21% -
Operating Profit 11 (15)
% to sales 7% -10%
-10%
Any discount / Free goods directly reduces our Profits

20. Impact of Discount / Free Samples
Any discount / Free goods directly reduces our Profits
USD K Original
Qty 10
ASP 15
Sales 150
Sales Discount 0
Cost 87
SGP 63
% to sales 42%
OV 6
AGP 57
% to sales 38%
Opex 31
% to sales 21%
Operating Profit 26
% to sales 17%
USD K Free goods Variance
Qty 11 1
ASP 15 -
Sales 150 -
Sales Discount 0 -
Cost 95.7 9
SGP 54.3 (9)
% to sales 36% -6%
OV 6 -
AGP 48.3 (9)
% to sales 32% -6%
Opex 31 -
% to sales 21% -
Operating Profit 17.3 (9)
% to sales 12% -6%

21. Lets See Product Mix Impact with help of Example
Product Price
A 10
B 12
Case I Case II
Sale - 2 units of Product A, 1 Unit of Product B Sale - 1 units of Product A, 2 Unit of Product B
Sales will be Sales will be
Qty Price Sales Value Product Mix Qty Price Sales Value Product Mix
A 2 10 20 67% A 1 10 10 33%
B 1 12 12 33% B 2 12 24 67%
Total 3 32 100% Total 3 34 100%
Product Mix Impact on Sales
Assuming both products generate same profit margin,
it will be more profitable to make sales in Case II

22. HospitalCompany Plants Distributor
Sales Distribution Network
Patient
Patient
Pays the
MRP to
Hospital
Hospital buys
products from
Company and
sells it to a
patient
Distributor will
supply product to
final customer and
earns a
commission %
normally 8%
Company either
buys or
manufactures a
product at certain
cost
ASP= MRP minus
Hospital Margin minus
Distributor commission
Distributor
Price= 278
Hospital
Purchase price
= Rs 300
MRP = Rs 500
MRP= 500
Hospital Margin=
200
Commission= 22Company ASP= 278

23. Margin Game!
Mr India ( Company top sales manager) was being approached by customer
for a business proposal
• Business Value : INR 50 Lakh
• 30000 product A @ Rs 40 each : Company Cost @Rs 20
• 760 bottles of Product B @ Rs 5000 each : Company Cost
@2500
• Hospital Sales product to patient on MRP
• Product A @ Rs 60 each
• Product B @ Rs 7000 each
• Hospital Overhead assumption 5% of sales value
• 10 marketing events (each cost approx INR 30K)
• Participation in Conference (cost approx 3 Lakh/doctor)
• Distributor margin (with 12% commission).
• Distributor credit term to hospital of 18 days
• Distributor started business with Rs 1 Lakh investment and requires
Rs 25 K to meet operational expenses
• Assume Company Distributor commission = 8% , OV =5% of sales ,
SG&A = 10% of sales
Would you accept this proposal?
Hospital

24. Company’s Margin
Lets work out the P&L
Sales = Rs 50 Lakh
Distributor commission (12% of 50 Lakh) = (Rs 6 Lakh)
Cost of product = (30000 X Rs 20 + 760 X Rs 2500) = (Rs 25 Lakh)
OV / Freight and Distribution = (Rs 5 Lakh)
Manpower / Back end support = (Rs 5 lakh)
Profit = Rs 9 Lakh
% to sales = 18%
Would you accept this proposal?
Additional cost
10 marketing events (Rs 30K X 10) = (Rs 3 Lakh)
Participation in conference (Rs 3 Lakh X 2) = (Rs 6 Lakh)
Total Additional Cost = (Rs 9 Lakh)

25. Hospital’s Margin
Lets work out the P&L
Sales Product A (30,000 X Rs 60) = Rs 18 Lakh
Product B (760X Rs 7000) = Rs 53 Lakh
Cost Product A (30,000 X Rs 40) = (Rs 12 Lakh)
Product B (760X Rs 5000) = (Rs 38
Lakh)
Hospital Overhead 5% of sales value (Rs 15lakh + Rs 45.6 Lakh) = (Rs 3 Lakh)
Profit earned by Hospital = Rs18 Lakh
Pre tax % to Hospital = 25%

26. Distributor’s Margin
Distributor commission (12% of 50 Lakh) = Rs 6 Lakh
Expense = Rs 25 K X12 = (Rs 3 Lakh)
Profit = Rs 3 Lakh
% to sales = 50%
Investment made by the distributor
Working capital of distributor
Annual Turnover and commission value earned
Profit value earned by distributor
ROI on annualized basis
Investment by Distributor
Initial Capital Investment = Rs 1 Lakh
Average AR Investment/Working capital = Rs 2.5 Lakh
Total Investment = Rs 3.5 Lakh
ROI = Rs 3 Lakh / Rs 3.5 Lakh = 86%

27. Key Factors for Account
Management
• Number of Beds
• Specialties
• Capacity Utilization
• Opportunity /Maintenance account
Future Potential
of the account
• Man-hours – Field Force ( KAM/SM/ASM)
• Asset Placed in the account
• CME and other educational programs
• Back end support cost
Investment in
the account
• All Company supplied products should be considered
• Offer complete range of products to maximize ROI
Basket of
products
supplied
• Company Margin /ROI
• Distributor ROI
• Retail Margin
Margin Analysis

28. SALES
Infrastructure Cost
Warehousing &
Distribution centers
Cost of servicing the
account
Back End support
Educational Activities
Promotion & CMEs Placement of machines Patient servicing cost
Coverage of Account
Salary Travel
Cost of Covering an Account
All figures in INRK per month
15K 5K
10K 2K
10K
5K 11K 15K
250K

29. Factors Affecting Pretax
 Effective forecasting
 Lower Slow/Non moving : Less Discards
 Inventory control : positive cash flow
 Re-distribution : Reduced /eliminate wasteful freight cost
 Freight and Duty : Reduced Emergency supply
 SG&A : Operating expense
 Hospital related expense : Check ROI
 Rationale travel : Avoid unplanned/unnecessary travel
 Analyze ROI on marketing spend
 Ensure effective utilization of Baxter’s Money

30. What is a Balance Sheet / MCB?
• Statement reflecting what you /entity owns & owes
• Snapshot of a business financial condition and net worth
• Also referred as Managed Capital Base in Company
• Balance sheet has two components 1) Assets 2) Liabilities
30
• Assets : Everything that is owned by a business (tangible or intangible)
and must have an associated future value stream that can either be
converted directly into cash or has a value in itself which includes
Account Receivable , Inventory , Capex ,Prepaid
• Liability : Every thing which is a legal debts or obligations that arise
during the course of business operations for example Accounts
Payable , Accrued Expenses
Does Higher Assets means Healthy Business?
Does Lower Liability means Healthy Business?

31. 31
Credit Cards Outstanding
Houses/Property
Cars
Home Loans
Savings/Bank
Wife’s Jewelery
Personal Loans
Example of Personal Balance Sheet
Assets Liabilities
Sales

32. Working Capital
• Working capital, in simple terms represents amount of
funds blocked by business to carry out day to day
operation
• Working Capital = Current Assets − Current Liabilities
32
Low Working capital means
higher funds availability for
investment and spending
Higher Working Capital Means either high Current Assets
( Inventory / AR) or Low Current Liability ( Payables)

33. Key Take Away!
Sales & SGP
• Increase in ASP or discounts
directly impacts Profits
• Analyze distributor /
Hospital margin to impact
ASP
• Better Mix of High GP
products
Cost
• Eliminate Wasteful
expenditure
• Discard
• Redistribution
• Ensure optimum utilization
of placed assets
• Check ROI for all marketing
investments
• Monitor and Maximize
productivity of all resource
Distributor
and Hospital
• Distributor
• Investment
• Working capital
• Turnover and commission
• Profit earned
• ROI on annualized basis
• Hospital
• Future Potential
• Baskets of product
• Margin
• Baxter’s Profitability