Marketing Profitability and Profit Impact

Businesses struggle to understand how their investment in marketing and sales contributes to the profits of their company. The logic and math are simple and use financial data which adds to the credibility of this metric.

As shown above marketing profits are a net marketing contribution. They are the sales times the percent margin minus what was spent on marketing and sales to produce that level of sales and margin. Because Apple does not report marketing and sales expenses separately, it was estimated as 75 percent of their sales, general & administrative expense. This is an industry average used to estimate marketing and sales expenses when not available.

In 2009, Apple produced $36.5 billion in sales for all products and services sold worldwide. As a company, their marketing and selling strategies produced a gross profit of 36 percent, or $6.9 billion. However, this gross profit did not just appear at Apple’s doorstep. It was earned through their investment of $3.1 billion in marketing and sales. The remaining $10 billion is their net marketing contribution.

These are the only profits produced by the enterprise. As shown below, Apple’s net profit of $5.7 billion is their net marketing contribution minus general administration expenses, other expenses (including R&D), and interest and taxes.

Apple Net Profit – 2009

When net profit is divided by stockholder shares it results in $6.29 earnings per share. If Apple invests in marketing and sales and can increase their net marketing contribution to $11 billion, it should extend its net profits in the graph above.

To appreciate the relationship between marketing profits (Net Marketing Contribution) and net profits, note the relationship for Apple, Inc. from 1999 to 2009. This is a pretty compelling relationship which, in the case of Apple, has a correlation well above .90.

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