If “marketing” is the generator of business revenue, why do Financial Officers generally regard “marketing” as only a cost?

If “marketing” is the generator of business revenue, why do Chief Executives, Finance Officers and senior management frequently regard “marketing” as only a cost?

It is a common complaint amongst marketers that they are not understood by the finance department, and are always trying to justify their expenditure and their existence. Why is this?

The problem stems initially from the understanding of what the “marketing” function is and does. When asked which part of the business generates the revenue, most Chief Executive Officers (CEO) and Chief Finance Officers (CFO) will give the answer as being the sales department. When asked about what the “marketing” department contributes to the business, the answers tend to involve advertising, customer relations and market research and how much they cost.

The objective of the CEO is to develop sustainable profits for the long term benefit of shareholders, staff and customers. For the CFO, the objective is to maintain the cash flow in order to sustain the business, by maximizing the use of assets and minimizing the costs and investments. From this perspective, when trying to understand the contribution of “marketing” to the business, the sales organization tends to have the advantage, in that its investment in terms of costs can be measured, as can be its output in terms of revenue generated. In contrast, the activities of what is often perceived as “marketing”, that is advertising, customer relations product management and “marketing” research, can easily be measured in terms of the investment involved, but much harder to quantify in terms of financial contribution to the business.

Clearly, it would seem that most CEOs and CFOs do not fully understand what “marketing” actually is. However, judging by much of what is currently written, many marketers are so involved with CRM, brand position, advertising and research that they have forgotten the purpose of “marketing” in its original sense, and have concentrated on the narrow perspective of their own specialist discipline.

In 1976 the Chartered Institute of Marketing (CIM) defined “marketing” as being “all those activities which anticipate and satisfy customer demand profitably.” Thus what is termed “marketing”, should encompass and integrate all those activities which not only collectively produce revenue, but above all, profitable revenue.

Some may regard this definition as out of date, but all the activities involved in getting and retaining customers by satisfying their needs profitably, are interdependent and need to be considered together and not separately. Whatever these activities are collectively called, be it “marketing” or something else, they are collectively fundamental to the business as they generate the profitable revenue on which the business depends and their contribution must therefore be considered as a whole and not separately. These functions should be managed collectively under single structure, encompassing all those activities involved in getting and maintaining business, and not considered as separate business areas.

Marketers need to be able to communicate about their contribution to the business objectives within their own organizations, and in a language that is understood by their principal audience namely the CEO. CFO and senior management. Defining performance in finance and the “business doing” or “production” areas of a business is done in terms of management and financial ratios e.g. Net Profit/Equity Capital; Current Assets/ Current Liabilities; Production Contribution/Production assets. However, it has frequently been held by Marketers, that because “marketing” is more an art than a science, it could not be measured in any meaningful way, but this assertion is patently wrong. Marketing performance can and must be measured in such a way that not only can its contribution and costs can be clearly seen, but they are in a form which is also understood by both the CEO and CFO. This is best done in the form of business ratios, benchmarks and metrics, which are comparable with performance measurements from other areas of the business.

For too long, many ineffective marketers appear to be fixated by branding initiatives, image and other aesthetics. However this sort of information does not translate into financial and numerical data for the (CEO) and CFO in a manner that relates to the performance information from other areas of the business. The challenge for marketers is to present marketing performance measurements to the CEO and the management team in financial terms that they understand, like contribution and Return on Investment (ROI).

Marketers need to explain to CEOs and CFOs exactly what the marketing function does and what it produces. To do that, marketers have to provide measurements of marketing performance in terms of the financial contribution that all the business getting activities that comprise “marketing”, make to the business, as well as the investment and costs involved. These are numbers which will relate to other costs and investments in the business and so helps the CFO and the CEO to have a full and accurate picture of the overall business performance.

By defining marketing performance in a manner that relates to the generation of profitable revenue, “marketing” will be seen and valued by the CEO, CFO and senior management, as the generator of profitable revenue on which the company depends, and not as purely as a number of costly individual activities of indeterminate worth.

© N.C.Watkis, Contract Marketing Service 12 Jun 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.) CMC- InsightExec 26 Jun 07

June 26, 2007   Posted in: marketing management

2 Responses

  1. consuming healthy coffee - May 15, 2014

    Thanks , I’ve recently been searching for info approximately this
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  2. Mr Maximized - May 19, 2014

    Not quite sure what you want to know. Business is about making money which requires investment. “Marketing” is an over used term that has lost its meaning, because it means different things to different people. The Chartered Institute of Marketing defines marketing as “the management process that identifies anticipates and satisfies customer requirements profitably. I regard marketing as a management process that I now refer to as Commercial Management, to avoid confusion.

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