Fundamentally, net profit and net marketing contribution are the parameters, which greatly influence the decision making process in the organization, because these pieces of data may serve the basis of taking such decisions as progress and further development of the company. Modern business environment is very flexible. Therefore, it’s crucial to react to the results of the company activities and changes on the market very quickly. Otherwise, the inability to be flexible and to react fast to these changes may lead to the decrease in the company’s productivity and even to the collapse of the company.
An effective and competent analysis of the company’s performance is impossible without taking into consideration net profit and net marketing contribution parameters. On the other hand, it is important to note that the influence of these parameters depends on the peculiarity of the products and services and on the strategy that the company has selected.
Now, let’s take a closer look at both parameters. Net marketing contribution consists of the product line marketing profitability, excluding operating services and production expenses. Net profit differs from net marketing contribution greatly because it shows the amount of finances in dollars, which is left after taxes, interest, operating expenses, preferred stock dividends are subtracted from the total revenue of the company. Net profit is also called net earnings, net income or bottom line.
Let’s consider net profit and net marketing contribution using an example. For instance, for Santa Fe Sportswear, the company that produces sportswear, the estimation of net marketing contribution is much more important that the estimation of net profit. Why? It’s rather clear: because Santa Fe Sportswear focuses on several product line productions. Taking this into consideration, it becomes obvious that the company needs to estimate the effectiveness and profitability of each product line in order to make a more meaningful conclusion about the successes of the company. In this respect, net marketing contribution is a much more useful parameter to evaluate the company’s performance, because it shows how each product line contributes to the overall results of the company.
For other companies, net profit is a financial parameter of the highest importance, because it reflects the source of financial reward to shareholders of the company. In case the company can’t create enough profit for its shareholders, the value of shares decreases. On the other hand, high stock prices reflect good profitability and strength of the company.
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There are a lot of reasons that contribute to the company’s net profit becoming negative. They range from poor customer experience to bad expenses management. Reasons of net profits decrease should be thoroughly analyzed by a group of qualified anti-crisis analysts.
As you can see, both net marketing contribution and net profit are very important parameters in defining the condition of the company. The usage and role of these parameters differs greatly and depends on the peculiarity of the business model as well as the strategy chosen by each individual company.