Both buckets are wrong. Marketing is a value center. Why?
Of course, marketing generates revenue. With buyers fully in control of the buyer’s journey conducting 70-80% of their process before engaging a sales rep, marketing is the heart of your go-to-market model. It just is.
Of course, marketing is an operational cost given its role in shaping critical systems like the CRM and driving essential functions like corporate communications.
But thinking of marketing as belonging exclusively in one of these buckets is a wrong (and detrimental) mindset because marketing generates all sorts of financial value critical to the hallmarks of a truly successful business – sustainable growth and repeatable revenue.
- Product messaging and positioning that leads to demand creation.
- Campaigns and engagement that lead to pipeline and sales.
- Customer experience and communication that lead to customer retention.
- Brand messaging and positioning that lead to talent retention and word-of-mouth sales.
The businesses that struggle the most in competitive markets are certainly those that view marketing as a cost center only. They’re likely to involve marketing when something needs to be polished and published at the last mile. This undervaluing of the marketing discipline stifles growth.
However, businesses that view marketing as purely a revenue center are also likely to struggle. They measure all of marketing’s investment each year solely on the revenue return in the same year. This leads to bad decisions contrary to marketing best practices, cutting budgets, focusing on short-sighted brute-force tactics, and ultimately lower, lower… and lower revenue in each subsequent year for as long as the business survives.
Yeah, but is “value center” just another buzzword?
Not at all. It’s a matter of accurately measuring marketing’s total impact on the business which enables businesses to make smarter, strategic marketing investments for both the short-term growth and long-term viability of the business.
Here are just a few examples of Equivalent Financial Value (EFV) that frequently go unmeasured.
- Talent Retention
- Buyer Perception
- Partner Perception
- Analyst/Media Attention
How do you measure Equivalent Financial Value?
This question can be split into two questions:
- How do you measure Equivalent Financial Value in terms of formulas and variables?
- How do you get the C-suite to see the big picture and agree on Equivalent Financial Value?
Check out this article,How to Quantify the Financial Value of Marketing, for specific definitions, formulas, and examples.
As for the second question of getting executives behind the concept of Equivalent Financial Value, this is where you will put on your consultant hat and explain the concept and lead a working session to arrive at a consensus. Here are some tips.
Wait! If you are the marketing leader but you totally rely on Accounting to manage the marketing expenses, start here with this article, CMOs Need to Manage Expenses to Be Taken Seriously.
OK, do you have a handle on the importance of expense management? Now, back to those Equivalent Financial Value conversation tips!
- Lead with Business Goals. If they’re loosely defined, insist on precision and clarity.
- Suggest Marketing Objectives that map to Business Goals and the team agrees with.
- 3. Define Key Results for each Marketing Objective that are hard metrics that are clearly measurable and fully within the purview of marketing.
Now, start the Equivalent Financial Value discussion for each Key Result, asking “What is a [Key Result] worth to the business? Be ready to suggest an answer if you get blank stares and shrugs. Start with the obvious Key Result – a new deal – and use an established Average Deal Size as the answer. This Key Result, New Customer, has an EFV equal to Average Deal Size. Work your way back through the customer funnel to the next Key Result – Opportunities – and use an established Win Rate. This Key Result, Opportunity, has an Equivalent Financial Value equal to Average Deal Size multiplied by Win Rate. You get the idea.
Before we go down that rabbit hole too far, let’s zoom back out. The Sales Funnel is easy to quantify with averages and assumptions. But what about fuzzier marketing objectives like “Establish reputation as a leader in the [Market Category]” or “Attract and retain top talent”. The “What is that worth to the business?” question makes for a great, thought-provoking conversation with the CEO and CFO. If they’re ready to commit dollars and resources to achieving those objectives, it certainly behooves them to apply an “Equivalent Financial Value” to them. If you’re willing to spend X, then clearly its worth X but most likely 2X or 3X, right? Unless they’re a non-profit.
The means that EFV might require some back-of-the-napkin math. It doesn’t matter. What matters is the C-suite has put a dollar value on the worth of marketing achieving that goal. Now you have justification for budget to achieve it.
Can you give me an example?
Here’s a good example. A business’s Goal is to become a leader in their market category. Great, marketing can support that with an Objective of improve brand perception as a leader in this market category. That’s still very squishy and up to interpretation. So, one of the Key Results to prove this has been accomplished (you can have more than one) is to be published in the “leader” quadrant of the preeminent market guide for our category. That’s a concrete, clearly measurable achievement. Now ask, what’s the Equivalent Financial Value of doing that? You could say we expect to get shortlisted and included in 10% more deals and that our buyer will be more confident in choosing us, leading to a 5% lift in the Win Rate. Now, you can imagine with a little whiteboard work you can turn that into a projected dollar amount… your Equivalent Financial Value. Great! Now what?
Now, we’re getting somewhere! With an Equivalent Financial Value firmly set for achieving a previously soft and squishy marketing objective, ask the executive team in the room, “What are you willing to pay for that?” In other words, what Return Rate are you looking for… 3X, 5X? Whatever the number, you have now just walked the team to a reasonable, rational marketing budget everyone should be willing to commit to this one Marketing Objective. Rinse and repeat for each Marketing Objective & Key Result.
By using the concept of Equivalent Financial Value, you’ve set clear objectives for marketing, a wholistic way to measure marketing impact in financial terms, and you’ve rationalized your way to a budget proposal.
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