In this MarketingProfs Classic, which originally ran in 2006, Jim Lenskold reminds us that, since the dreaded annual planning and budgeting process isn't going away, it's time to make the effort to get more value out of the process. Jim writes, "Here are four ways to use financial insight to create more profitable strategies and tactical plans while building greater credibility with your executive team."
In our days of youth, we dreaded the end of summer and the return to school. Now, as marketing and business managers, we have the equally dreadful annual planning and budgeting process that for many starts toward the latter part of summer. CFO Magazine reports that almost half (45%) of financial executives say "budgeting and reporting are contentious, political, and time-consuming." If the number-loving finance group has this view, you're not likely to find marketers' opinions to be any better.
Since planning and budgeting are not going away, you may as well make the effort to get more value out of the process. It's actually an ideal time for putting basic ROI analysis to use. Here are four ways to use financial insight to create more profitable strategies and tactical plans while building greater credibility with your executive team.
1. Alignment with objectives sets the right stage
Alignment with business objectives and at least a reasonable financial estimate of your impact will enhance your credibility with Finance and the executive team who are determining where in the company to put their limited financial resources. The credibility from showing ROI and contribution to business growth puts marketing on equal footing with other departments, making it more of an investment than a discretionary expense.
Start by using the best information available to map the impact of your marketing on customer perceptions and behaviors completely through to financial outcomes. Not every marketing initiative directly drives incremental sales, so look beyond this independent initiative and consider how this integrates with other initiatives. It's helpful to consider the customers' buying funnel that represents the progression from unaware prospect to profitable customer.
Your plan should state both what your marketing accomplishes on its own and specifically how that contributes to business performance. If you are not sure how your marketing contributes, you quite likely have gaps in your strategies and plans.
Getting an estimated ROI projection from this point can be done two ways:
- The first approach is to compare the cost of your marketing initiative (your investment) to the incremental financial contribution (the profit directly from your initiative or in excess of the profit that would have been contributed without your marketing initiative).
- The second approach is to sum your initiative and the ones that follow (where sales are actually generated) to compare that total investment to the total profits returned.