The financial projections facilitate any decision-making relevant for determining future business performance. The financial forecasting process includes the analysis of past business performance, current business trends, and other relevant factors.
Firstly, it’s important to know how much does it cost to produce. These formulas can be used to help calculate the costs associated with producing a product or providing a service, and can be useful for making pricing and production decisions.
FC (Fixed Cost): Fixed costs are expenses that do not vary with changes in production levels or sales volume. Examples include rent, salaries, and insurance.
VC (Variable Cost): Variable costs are expenses that change in proportion to changes in production levels or sales volume. Examples include raw materials, direct labor, and sales commissions.
TC (Total Cost): Total cost is the sum of fixed costs and variable costs. It represents the total amount of money spent to produce a given quantity of output. TC = FC + VC
Secondly, it’s essential to know how profitable is the project/business. By understanding their revenue and cost structure, companies can set prices that cover their expenses and generate profits.
Revenue: the total amount of money earned from the sale of goods or services. Revenue = Price (P) x Quantity (Q) where P is the price of a product or service, and Q is the quantity sold.
Profit: the amount of money a company makes after deducting all of its expenses from its revenue. Profit = Revenue - Total Cost (TC) where TC is the sum of all fixed and variable costs associated with producing and selling the goods or services.
Price the amount of money charged for a product or service Price = Production Cost per unit (PC) + Desired Profit Margin per unit (PM) The desired profit margin is typically a percentage of the production cost that the company aims to earn as profit from each unit sold.
Key Marketing Metrics
Key marketing metrics (also known as key performance metrics (KPI)) help businesses track the effectiveness of their advertising campaigns.
Impressions: The number of times an ad is displayed to a user, regardless of whether they interact with it or not. This metric is often used to measure the reach of an advertising campaign.
Cost per Click (CPC): The average cost of each click on an ad. This metric is calculated by dividing the total cost of an advertising campaign by the number of clicks received. CPC = TC / # of Clicks
Cost per Mille (CPM): The cost per thousand impressions of an ad. This metric is calculated by dividing the total cost of an advertising campaign by the number of impressions received, then multiplying by 1000. CPM = (TC / # of Impressions) x 1000
Conversion Rate: The percentage of users who take a desired action after clicking on an ad, such as making a purchase or filling out a form. This metric is calculated by dividing the number of conversions by the number of clicks received. Conversion Rate = (# of Conversions / # of Clicks) x 100%
Clickthrough Rate (CTR): The percentage of users who click on an ad after seeing it. This metric is calculated by dividing the number of clicks by the number of impressions received, then multiplying by 100%. CTR = (# of Clicks / # of Impressions) x 100%
Return on Investment (ROI): the financial metric that measures the profitability of an investment by comparing the return generated to the cost of the investment. To calculate ROI for a marketing campaign, you need to determine the revenue generated by the campaign and subtract the cost of the campaign, then divide the result by the cost of the campaign and multiply by 100 to get a percentage. ROI = (Revenue - Cost) / Cost x 100