The most important part of a brand

July 25, 2011 § 2 Comments

Today’s post is about the single most important thing about a Brand… consumers, right? WRONG! Money, profitability, margins.

The most important duty you’ll face while being a Brand Manager is how to maintain and improve your brand’s margin over its life. Of course consumers are important, but if you’re not making money with the ‘optimal’ consumer price, then you’re going to be soon out of business. This is why you need to understand how to use your brand’s P&L (profit and losses statement) to understand your financial SWOT (Strength, Weaknesses, Opportunities, and Threats).

A P&L is not as easy as Earnings – Expenses = Profit. This is important because some creative minds think that the only things they need to worry about are cost of Raw materials, Production and the price and this is way-off the real thing. I will take you through a P&L from the consumer point of view (1 item sold at 9,99€), then from the brand manager point of view.

The consumer-focused P&L only gathers information from a 1 product sold point of view and gives you a clear view of what every P&L line represents from your Net Sales.

The P&L form the consumer point of view

This explains a bit better why a product that contains ingredients valued at 3€ can be sold for 10.

Now, as a BM you won’t find a P&L per unit, but this understanding the above will help you understand the bellow… Which contains big numbers, monthly numbers that will be taken into account to evaluate your performance. This is what you can expect your FMCG P&L to be (we will use the same figures <100 gr packs>:

 This is a P&L form the brands point of view - The real thing

You may have noticed that I included a red column with the cost per ton, and that some cost have changed… the first is only of value when comparing <which is a very important factor when analyzing a P&L> you have to compare to previous month, to previous year, to trends… find out if your product is more expensive, or if Sales people are wasting money.

A fluctuation <change> in the raw materials, packaging, additives, distribution or labor can pinpoint a punctual problem in your supply chain or a big problem that you might forecast and prepare for the future (such as changes in dist rates, prices of commodities, etc.).

You’ll also have to compare your monthly results to the Budget, this is the main reason the A&P budgets are sometimes cut. If you can’t make the number (the bottom line) you might help by removing the marketing expense. If you’re having better than expected sales and better costs (due to cost reduction initiatives) don’t hope for a budget increase, the extra money will almost always go directly to the bottom line, but if you keep a record of this changes, you can leverage for extra support next year or the “OK” for an NPD.

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§ 2 Responses to The most important part of a brand

  • method says:

    Good post, but your use of the term “EBITDA” is misplaced. EBITDA is earnings before interest, taxes, depreciation and amortization, but you’ve used the term even though all of these have items have been used in the calculation. The last line there is Net Income, not EBITDA.

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