The debate about marketing being a cost or an investment still rages on. I think part of it stems from CFOs categorizing marketing costs as an expense on the P&L rather than considering marketing as an opportunity to drive revenue to the top line. The former is required by basic accounting; the latter is required by smart CEOs.
So I decided to do a poll in an active CFO LinkedIn group to gauge marketing’s value to the office of finance. The question was, “Do you think marketing is an investment or an expense?” The results were intriguing. Approximately 50 percent saw the world like hardened accountants, and went right to the standards definition responding with, “marketing is an expense,” while the other 50 percent responded that “marketing cost is an investment for future sales.”
Notice how they captured the accounting rule of cost (do I dare say GAAP in a marketing post?), but not the intent of its outcome. I wonder if I asked the same question replacing “marketing” with “sales” if the response would still be 50/50. As weird as this may seem, the word "sales" is a lot closer in meaning to revenue than the word "marketing." Thus it’s easier for people to justify the spend level for sales people then it is for marketing professionals—even when both are equally considered costs on the P&L.
I was recently dealing with a sales leader who continued to take claim for 100 percent of the incremental sales for a recent campaign push. He made it clear in open forums with senior executives that marketing had not helped with driving any new “leads.” Yet, upon full discovery, every asset produced, such as emails, videos, social, brochures, events, web site, landing pages and other tactics, was leveraged by the sales force to help open up doors and close sales. The full burden of marketing asset development rested on the marketing budget line item, but the full credit of the incremental sale was on the sales equation. When I asked the sales leader if he would prefer that marketing shut down and no longer develop the assets, his said, “No way, we need that to help sell.”
Absent my public challenge, I surmise the sales leader would continue to take claim for the incremental revenue and the full attribution of the effort—"I got a new client (incremental) and I closed the deal (attribution).” At some point, marketing needs to get its seat at the table and be objective for its claim for the contribution of incremental revenue and attribution. This is where sales leaders often have an easier time justifying the cost of their labor and compensation model — it is, after all, the last segment of the buyer’s journey — than their marketing counterparts do.
The key for marketing is to properly set up its systems for tracking the attribution from initial asset development all the way through the sales close. This line of sight helps all parties understand that 1+1=11. This also helps the office of finance understand that an incremental investment in marketing can have a direct and empirical effect on future sales and current cash flow (i.e. NPV). Conversely, the reverse effect can occur when the office of finance has to do a claw back and cuts marketing costs first. Future sales and cash flow will decline.
Whether you run marketing or sales, ask yourself these two questions to determine whether you are in a position to justify the investment versus being labeled as only a cost center:
“What was the value of the last dollar spent?”
“What is the value of your next dollar spend?”
If you can prove it, then you are well on your way to attributing marketing’s contribution to the business’ bottom line. And once marketing’s spend is properly attributed, the CFO has insight into the value that marketing is providing and can confidently invest in these activities.
So what does your CFO think of marketing? Is it a cost or an investment?
Jeff Winsper, President of Black Ink, offers more than 20 years of leadership experience in marketing, serving companies ranging from Fortune 500 to start ups. His deep experience generated the insight that companies – in particular mid-sized enterprises – are lacking the foundation of proper big data analytics to measure marketing’s performance. Prior to launching Black Ink, Jeff founded marketing agency Winsper, part of Worldwide Partners, with 137 offices in 54 countries.
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