Marketing Economics

The marketing department is a service that supports the Sales efforts of the organization, by providing tools to foster lead generation and customer retention. Regardless of the geographic reach, a centralized marketing department ensures consistent messaging across the organization. Additional activities should focus on identifying low cost, highly targeted approaches to messaging.

 
But this department should not be a financial drag. Most Marketing Managers create a Marketing Plan/Budget which includes a list of activities and the associated costs. This document is submitted to Executive Staff and approved. However, the lack of program justification makes it very easy to slash the Marketing budget during tough times. But interestingly, it is during these tough times that Marketing is critical.

An alternate approach is to project ROMI (Return on Marketing Investment) for every proposed activity. ROMI is simply a derivative of Return on Investment (ROI). The formula is as follows – (Gross Profit-Marketing Investment)/Marketing Investment. An example is as follows –

$600,000 Revenue from Marketing Program
$120,000 Gross Margin @ 20%
$100,000 Marketing Investment
20.00% ROMI

Programs should only be considered if they generate a positive ROMI or exceed a pre-established level. In this situation, a 20% ROMI would justify proceeding with the Marketing Investment. Now imagine all of your programs with an associated projected ROMI. Clearly the priority would include executing programs with the highest ROMI first.

Now let’s look at activities where a ROMI measure could be calculated —
• Lead Marketing – Programs that support Personal Sales efforts. For this area, a selection of brochures and materials that discuss the services you offer should be available for sales force use.

• Lead Source Management – Any sales organization should have the capability to track lead contacts centrally; as well as current customers. This database becomes the main source listing of Customers and is a focus of Retention efforts.

• Customer Retention – Programs to strengthen new and past relationships, i.e. thereby minimizing missed opportunities. ROMI should be calculated for all activities to justify their use. Sample activities include –

1. Monthly e-mail announcements with links to marketing flyers;
2. Direct Mail, i.e. targeted campaigns to leads retained in your Contact Management system; and,
3. Website / Social Media activities – please note an earlier blog post – “Is Your Company Maximizing Social Media”

Critical to the roll-out of any program, is the ability to collect pertinent data and accurately track results, to refine the process or adjust projection variables.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Corporate Sustainability – Risk or Opportunity?

Simply stated, Sustainability relates to our impact on the environment, i.e. social responsibility.  Sustainability issues are on the minds of consumers; and continue to be a focus of the government and community groups.  How your company handles these issues could be a source of positive press or reputational risk.

At the end of 2011, Newsweek published its 2011 Green Rankings.  This piece identified, “America’s 15 Greenest Companies” and “America’s 20 Least Green Companies.”  Results can be viewed here – http://goo.gl/We91A.  Additionally, for a third consecutive year sustainability issues are expected to be a topic discussed at 2012 annual meetings (“Leading corporate sustainability issues in the 2012 proxy season” Ernst & Young).

Executive Order 13514, signed by President Obama in October 2009, could be considered a primary catalyst for the evolving Sustainability movement.  Based on this order, federal agencies are required to establish a strategy towards sustainability and make the reduction of greenhouse gas emissions a priority for federal agencies.  This requirement also extends to new contracts established, for goods and services purchased by these agencies.  If you service government agencies today, in your normal course of business, you have probably already felt the impact of this Order.

Are you prepared?  If not, following is an approach to get you started —

Immediate Approach

  • Identify an executive to be responsible for the Sustainability movement within your company;
  • Research your local trade group to understand their position.  If none exists, research the activities of your closest competitors in the area of Sustainability.
  • Plan to match the standard set.  Activities advocated by a trade group can become the minimum acceptable level, within the industry.  If a trade group does not exist, consider matching the actions of your most similar competitor, if it makes sense.  But doing nothing creates risk.

Long-Term Approach

  • Perform a Sustainability assessment to understand the applicability of Sustainability on your business;
  • Define the problem and develop a plan which may include re-engineering current products and processes;
  • Educate managers and employees on the company’s approach to sustainability;
  • Track issues within the community, i.e. listening to the concerns of employees, shareholders and community groups;
  • Establish a formal reporting process that provides a status of implementing plans and issues presented; and,
  • Discuss results at senior levels.

The growth in adoption by more and more companies makes the issue of Sustainability an important consideration for your company’s overall strategy and management.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

H.R. 3606, aka the Jumpstart Our Business Startups (JOBS) Act, is Law

The U.S. Senate granted approval March 22nd; while the House of Representatives approved March 27th.  The Act was signed into law by the President on April 5th.  This law creates a category of companies called “emerging growth companies” that stay under the radar of the Securities and Exchange Commission (SEC), for up to five years.  This class of companies includes entities with gross revenues of less than $1 billion in the most recent fiscal year.  Reportedly, this population includes 14% of companies.

The logic – relax rules that limit the ability of small businesses to garner capital, thereby assisting their growth.  As these businesses thrive, hiring increases.

Benefits afforded to emerging growth companies by this law include –

-Exempt from the requirement of separate shareholder approval of executive compensation;

-Need only to provide audited financial statements for two years, as part of their IPO registration;

-Exempts external auditors from attesting to the assessment of internal controls provided by management;

-Exempt from any firm rotation requirement  being considered by the Public Company Accounting Oversight Board;

-Raises the number of investors to 2,000 and investment value to $50 million, prior to SEC registration;

-Eases certain conflict-of-interest restrictions between the analysis and investment banking sides of a firm with respect to offerings; and,

-Exempt from soliciting investment from only sophisticated investors.  Reportedly, this provision will allow companies to seek funds over the internet, i.e. crowdfunding.

But don’t expect any sudden changes on Monday (4/9).  The SEC has 270 days to review the law and revise current regulations.  Items of this law alter elements of the following laws – Securities Act of 1933; Securities Exchange Act of 1934; Investor Protection and Securities Reform Act of 2010 (title IX of the Dodd-Frank Wall Street Reform and Consumer; Sarbanes-Oxley Act of 2002; Reg D; Rule 144A…

Detractors believe that loosening regulations will only lead to abuse and fraud.  According to the final version, the SEC will report to Congress every two years, tracking the incidence of fraud associated with these changes.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The International Financial Reporting Standard (IFRS) is coming. When and how should you prepare?

The adoption of IFRS standards is well underway globally.  PWC has a great map which provides integration details by country (http://www.pwc.com/us/en/issues/ifrs-reporting/country-adoption/index.jhtml).  How these changes will affect your company specifically is not obvious. The impact varies based on business complexity, industry and geographic presence.

Following is a recommended approach on how to integrate the standard within your US Company.  The approach is broken down between pre-approval and post approval –

Pre-Approval, i.e. now

  • Collect available information and analysis from AICPA, SEC, and the Big 4.
  • Determine the appropriate form of IFRS to adopt, based on your company, i.e. IFRS for Small and Medium Size Entities (entities without public accountability) vs. full IFRS.
  • Identify the standards that represent a change in the way you track the financial success of your business, i.e. revenue recognition, expense recognition, assets, liabilities, financial liabilities and equity, derivatives and hedging, Consolidation, business combinations…
  • Choose a team of experts within your company that will integrate the new standard, once approved.

These four activities can be completed internally, with little or no budgetary impact.

Within the US, the SEC reaffirmed its commitment to a global standard, but has yet to establish a timetable.  The plan is expected in the next couple of months.

Post Approval, i.e. 2012

  • Consider potential IFRS integration issues –
    • Data gaps, i.e. new standards may require the tracking of data not previously collected;
    • Entity consolidation not previously required; and,
    • Accounting policy choices.
  • Test the impact of these changes within your company.
  • Develop a project plan and budget, with appropriate deliverable dates.
  • Present the plan to your company Board of Directors to gain approval.
  • Integrate the standards into your business through plan implementation.
  • Issue IFRS 1 – established approach to issuing the first IFRS financial statements for your company.

In conclusion, with the time remaining prior to the SEC accepting the IFRS standard, a CFO should be studying the issue and increasing his/her knowledge base.

How are you preparing?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.