How to Calculate Net Market Contributions

by Tiesha Whatley; Updated September 26, 2017
The net market contribution calculates marketing profitability.

Net marketing contribution (NMC) is a calculation that determines whether a company's current marketing strategy is enough to cover the costs associated with marketing and sales. The current market demand and your company's market share are important aspects of the NMC calculation. At the basic level, the NMC calculation is sales revenue times gross profit, minus marketing expenses. It gets more complicated when trying to calculate the true sales revenue and gross profit of your company in relation to the market demand and market share.

Calculate your revenue per customer. This is the purchase price for the product. For instance, imagine your sunglasses company made a total of $77,500 in annual income sales for 3,100 pairs of sunglasses. Divide $77,500 by 3,100. The revenue per customer is $25.

Calculate the variable cost per customer. This will be the price of materials plus labor costs. If, to produce each pair of sunglasses, you need $5.25 worth of materials and $4.25 of wages, the variable cost per customer is $9.50.

Subtract the variable cost per customer from the revenue per customer. In the example, subtracting $9.50 from $25.00 equals $15.50. This is your gross profit.

Calculate the market demand. This is the total amount of the sales made by consumers for your type of product. To follow the example, assume the consumers in your area purchased 4,500 pairs of sunglasses from Company A, 5,000 pairs from Company B and 6,000 worth from Company C. Find the sum of 4,500, 5,000, 6,000 and 3,100 (your company's sales). The market demand for sunglasses in your area is 18,600.

Calculate the market share for your company. The market share is the portion of the market that your company controls. Divide the sales for your company by the market demand. In the example, divide 3,100 by 18,600 to get 0.1667. Now multiply that number by 100 to get 16.67. The market share for your company is 16.67 percent.

Multiply the market demand by the market share. For the example company, 18,600 multiplied by 16.67 percent equals 3,100. Multiply this by your company's gross profit. This would be 3,100 times $15.50, or $48,050.

Subtract the marketing expenses from the amount calculated in Step 6. The marketing expenses are any budgeted amount for marketing costs, surplus, manufacturing costs, machine cost and machine overhead. The marketing expenses for the example company are $5,000. Subtract $5,000 from $48,050 to get $43,050. This is your net market contribution.

About the Author

Tiesha Whatley has been writing for over 10 years. She has been published in "Marie Claire," "Ebony" and "Modern Bride" magazines. She holds a Bachelor of Science in English from the University of Alabama at Birmingham and has been working in the wedding planning industry for over 13 years.

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