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Management Accounting for Internet Companies

Management Accounting for Internet Companies. Daria Bashkeeva Melanie Gabauer Lilia Martynova Khristina Ripak. E-commerce E-business Internet commerce Electronic commerce Electronic business. What changes?. Consumers are able: to derive more information from the Internet

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Management Accounting for Internet Companies

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  1. Management Accounting for Internet Companies Daria Bashkeeva Melanie Gabauer Lilia Martynova Khristina Ripak

  2. E-commerce E-business Internet commerce Electronic commerce Electronic business

  3. What changes? • Consumers are able: • to derive more information from the Internet • to compare prices instantly • communication between buyer & seller becomes instantaneous • almost a perfect competition market • Pre- and post- customer service becomes very important • New ways of cost saving • Ex: airline bookings, internet banking • More costs are indirect

  4. Internet Company Company generating 50% of it’s sales via the Internet (Dow Jones Internet Composite Index)

  5. Types of e-commerce • E-business storefront • Amazon, eBay, Dell • Infomediary • Yahoo, Travelocity • Trust intermediary • VerySign, TradeSafe • E-business enabler • FedEx Virtual Order • Infrastructure provider

  6. Key cost objects Manufacturing firm Product Service firm Service • Retail firm • Department • Internet Company • ???

  7. Cost object - customer Customers are different in terms of profit What happens if we don’t pay attention to customers?  We lose most profitable ones How to determine profitability of a customer?

  8. Customer profitability total revenue - cost of goods sold • customer service costs = customer profitability

  9. ABC-costing Resources Activities Customer

  10. ABC-costing: identify activities Activities (direct costs) Cost drivers Revenue (customer’s size) Delivery locations Number of items Order frequency Number of purchase orders Number of shipments • Sales and direct marketing costs • Routine customer visits • Generate and take orders • Resolve order discrepancies • Order processing and order fulfillment • Shipping orders to customers and accounts receivable • Locating the order, checking for accuracy • Moving and loading ordered units • Paperwork (AR & Shipment documents)

  11. ABC-costing: identify activities Activities (indirect costs) Cost drivers Number of units Number of purchase orders to suppliers Number of shipments Number of items in order Dollar amount of inventories Number of units • Purchase and warehousing costs • Identify manufacturer • Negotiate rates • Maintain supplier account • Raising purchase orders to manufaturers • Receiving shipments from manufacturers • Receiving the order and checking for accuracy • Moving and unloading items • Paperwork (AP) • Warehousing space and capital cost

  12. Customer profitabilty total revenue - cost of goods sold • customer service costs (direct + indirect) = customer profitability

  13. What can you do? • Build customer profitability profile Gross profit margin (TR-COGS) - Service costs = Net profit margin • Focus on most profitable customers • Adjust pricing policy

  14. Non/Financial Information • Cost reduction: • Number of support calls, cost of call/revenue • Cost per order dollar • Total dollars spent on met-ready initiatives • E-economy growth • Online sales dollars • Number of transactions completed online • Customer satisfaction and reach • Numbers/percentage of return visitors • Online customer satisfaction survey score • Operations • Most requested pages/areas • Quality control metrics

  15. Extension – Google.com

  16. Google • Key product/service: search • Can it be cost object? • Does it generate revenue? • Source of revenue: advertising • Cost object: customer/advertiser

  17. Google’s business model Search, Gmail… Content providers Revenue: CPC AdWords+AdSense bid for keywords keywords relevant for content Costs: Revenue split Sales & Marketing Data Centers • Revenue: CPC • AdWords • bid for keywords • keywords relevant for search terms, content • Costs: • Sales & Marketing • Bandwidth & Data Centers

  18. 2005 Financials

  19. Customer profitability CostPerClick ($0,6) * N of clicks • Revenue split • Customer support • Marketing support • Billing of customers • Bandwidth • Data Centers = customer profitability Unit-level Customer-sustaining Channel-sustaining

  20. Example: Customer A Assume 25% of sales were fraudulent: Google: 0,6*5600=3377 Network: 0.6*3360=2016 Total revenue: 5393 Revenue split: 0.5*3360=1586 Sales & Marketing: 439.7 Cost of net revenue: 456.5 Profitability: 2910.8 or 54% Google: 0,6*5600=3377 Network: 0.6*4480=2688 Total revenue: 6065 Revenue split: 0.5*4480=2115 Sales & Marketing: 439.7 Cost of net revenue: 456.5 Profitability: 3053.8 or 50.3%

  21. Thank you!

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