Do I need to use the financial metrics?
As you will see when you use the free Excel template for your ATAR forecasts, there are several financial metrics automatically produced at the bottom of the spreadsheet.
As you can see, these financial metrics include:
- net present value (NPV)
- pay-back period (in years)
- internal rate of return (IRR)
- marketing ROI
- overall profitability
If you have not studied finance, then there is a possibility that you have not covered these financial metrics previously and may be concerned about using them. This is quite understandable, if you don’t know the terminology.
How important are these financial metrics to the ATAR decision?
For a university or college assignment
If you are using the ATAR forecast for a university or college assignment, then I would suggest that you could rely upon the overall profit level (which is calculated over the five-year period), the pay-back time period, and probably the marketing ROI as well. This would mean that you don’t necessarily have to use the net present value or the internal rate of return, as these initial three top-level financial outputs would be quite satisfactory.
Certainly in terms of a university/college marketing assignment, then the purpose is to assess your ability to construct a suitable sales/profit forecast, determine and justify suitable assumptions for the forecasting model, and then feed that information into your overall report and recommendations. Therefore, it is generally not an exercise in interpreting financial metrics.
For the workplace
If you are using the ATAR template to assist in a real business decision (please also see the disclosure on this website), then I would suggest that you also include the net present value (NPV) and the internal rate of return (IRR) to your management for information only.
This will mean that you have to ask your accounting or finance area for the firm’s discount rate to input into the model at the bottom. If the firm does not normally use a discount rate, then I would just suggest you keep the discount rate at 10%.
As a marketer, you just simply need to provide this information, it is not your task in an organization to explain financial metrics to management – that should be the role of the accounting/finance area if further information is required for management.
How the free Excel ATAR template works
Importance of financials in the new product decision
Please note that there is a video available on this website that discusses financial metrics for marketing purposes.