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.
© Copyright 2012 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!

Regis Quirin

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.

26 thoughts on “Marketing Economics

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