More audits are being performed in financial departments today due to the irresponsible behavior of a few top executives. Why stop there? Might it not be useful also to look at marketing investments as a fertile field for scrutiny? A marketing audit would measure profit and loss just as an accounting audit does. That is, it would measure return on investment (ROI). This article points out the benefits a company can derive from measuring the ROI of marketing to see whether this vital activity is being used to its full potential.
The Problem
While marketing budgets are often being cut because they are seen by many executives as a superfluous expense item, marketing has evolved in some quarters to go beyond a discretionary item in the budget to being a critical component of tight budgets in the present economy. This evolution has been driven by several factors, a key one being a new perception of how important marketing is for growth. Simply understanding that better marketing is crucial is not enough, however. The impact of a company’s marketing programs is often poorly measured, so their full potential cannot be known nor fully realized. Given the current depressed economic climate, it is essential for a company to be able to measure its ROI. When a company cuts marketing spending, it cuts the one function whose sole purpose is to increase sales.
History
Over the past twenty four months or so, many high technology and other companies were blind-sided by the economic downturn and did not know how to react. When some firms finally figured it out, it was too late. Jobs were lost, budgets slashed, market share lost and company value diminished. Of all times to stop investing in activities designed to sell more, a recession or period of soft demand or uncertainty would seem the worst; yet companies do it all the time.
Further, limited internal resources are causing increasing competition between marketing and other departments. Companies are looking to increase their new prospects while shortening the sales cycle by improving the marketing efforts without increasing the budgets. When budgets are thus limited, it is important to know which tactics within the program are working and which are not, so strategies can be realigned accordingly. In effect, the push for ROI is intended to justify marketing and demonstrate its effect on the company’s bottom line.
The Solution
Yearly, semi-annually, and monthly audits in the sales and marketing organizations can help marketing executives, top management, and investors ensure they are doing the right things to help drive growth for their organizations. Information gleaned from these audits can align the marketing organization and put in place the scorecard to keep it on track.
A marketing audit is a thorough examination and evaluation of marketing practices and results. It offers a baseline for performance measurements and a framework for effective business planning to maximize positive external perception and demand generation. Many companies choose to measure the quality of marketing by the amount of generated leads as a means of determining marketing effectiveness. Measurements, an audit, must be based on marketing strategy and programs based on pre-established criteria that include factors such as quantity of leads, sales cycle reduction, and lower cost per sale. Periodically, this audit can be revisited to see if the changes have had a positive impact on company performance in the areas of sales growth and company value, or indicate where adjustments may be required, such as positioning, or demand generation on the sales cycles.
The audit helps the organization understand aspects of strategic importance in sales and marketing. Its results become the blueprint for strategic decisions, for future sales and marketing plans by tying funds for sales and marketing to direct sales and leads generated. For example, if the sales cycle is twelve months, the associated income must be discounted back to the date the marketing program funds were spent under the “time-value-of money” concept.
Additionally, an audit helps the company determine the value of a sale and a sales lead. Value of a sale itself is fairly easy to determine-income generated after all expenses incurred-but the value of a lead is trickier. Is the lead strong or weak, we ask. What is its income potential? Where is it in the buying cycle? What are the chances of closing the lead? Marketing measurement programs-audits-that factors in all of these variables provide a detailed picture of a marketing program’s ROI and are critical for a company to stay in business.
There are no permanent “right” answers in marketing. Customers’ needs and wants are moving targets, and marketing programs require testing and retesting to find the most profitable formula. A marketing audit is the way to achieve success by providing an interim report card to help you and your staff tap into inherent resource. Whatever industry your company serves, whether or not you work with a marketing agency, your company executives should insist on developing robust measurement practices to assess and demonstrate effectively the value of your marketing efforts.
George Schildge founded Matrix Marketing Group, Inc. As the company’s
president, his vision is to ensure top-notch sales and marketing firm to
Matrix Marketing Group’s clients. Schildge’s professional offerings focus on
the measurable skills, experiences and return-on-investment needed to
enhance a company’s value to its clients and drive business results.
