Marketing as Profit Center

It's not just digital PR that needs a tune up in measurement, marketing does, too. Especially at budget time.

Northwestern University professor (emeritus-in-service) of integrated marketing Don E. Schultz just shared some very interesting points about ROI in his monthly column for Marketing News.

Having worked in the manufacturing industry for many years wearing the product marketing hat as well, I do see his point on Internal Rate of Return (IRR).

1. Budgets need to be based on customer incomes, not marketing spend

Which would base the budget on the return of investment in customers. Here's how you do it: figure out how much recurring revenue comes from a customer, invest in connecting with them, track and measure your returns from those investments. Now multiply that for the number of customers and their value.

It is that simple? Yes. Now how do you figure out how to attract prospects based on customer income? With social media, for example, you can find ways to attract their peers by talking about the same issues, providing education and information, and connecting them to each other. 

When you spend enough time talking with customers, you will learn very quickly to correlate your service price points with their needs in your head. While there are no typical anything anymore, there are challenges that organizations of a certain size faces and a number of ways to assist with those challenges. Learn from your sales team, they know that stuff.

Does your investment in customers generate a measurable and predictable return? 

2. ROI comes from customers, not marketing activities

The investments you make on customer segments will reflect the business strategy. If you're in maintenance mode, you invest to a certain level to retain the customer an keep the income coming in. If you're thinking about expanding into the account, then you grow the investment in that customer.

Here's something interesting though, status quo today is hardly possible. If you're in a rapidly evolving industry, you need to keep up with what's going on and help your customers do the same by moving them from high cost/decreasing value services/products to newer, faster, etc.

I've noticed that many more service providers are doing customer outreach campaigns. This is just so they don't switch from home phone to digital with cable, for example. Yet, I have not seen a cohesive effort to read customers digital body language.

For example, if you're Verizon (picking on them as they just called me), and your customers are browsing FiOS educational information, do you capture that and follow up? Do you allow customers (and prospects) to tell you what they're looking for at every step of the way online? Many businesses are still wrestling with understanding who lands on their Web pages and why. Get on that, fast.

It's not about income levels, it's about personas and being where your customers want to be. Time and time over, I learn that customers ended up buying more when they understood better what they needed to make more money, save, be more efficient, etc. Capture that, or they buy from others.

It's not your father's segmentation anymore.

3. Determine marketing success using the internal rate of return (IRR)

The most common way businesses use this rate is by determining the cost of money. Because this is a quantity rate, it's an indicator of the efficiency or yield of a single investment.

Dr. Schultz shares that for CPGs this is between 8-14%, higher for B2B technology companies due to a longer sales cycle -- 15-28%. Do you know your company's IRR? Whatever that is, you can then take the profit per customer, and calculate how much you can invest in them using the IRR %.

We're used to thinking about profit and loss in product marketing. Except here you turn it on its head and look at yield by customer instead of yield by product line. You can measure these amounts, and to evaluate them you need to take context into consideration.

In social media we often talk about value. Remember that ROI is quantitative and value is subjective

4. Turn marketing into a profit center

With this line of thinking, and if you think about What Would Google Do?, you can start measuring the return you get from investing in your customers and show a profit doing that.

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Marketing managers need to know this stuff. You must know this stuff, too. Time have changed and we're now hold accountable personally for the return on a business investment.

What say you? How do you break your marketing dollar investment into returns?

Comments

[Rich Becker]

Valeria,

This is going to take some time to process. Schultz raises some interesting and valid points, and you've adapted it nicely.

I like the idea of translating data into revenue per customer and the internal rate of return was always fascinating to me. And yet, there are several variables that aren't accounted for such as brand impact, future revenue (are those customers likely to increase spending), pass on revenue (what about those customers they don't spend much, but contribute to expanding reach), etc.

Credit Suisse recently broke it down by noting that strongly brands that invest two percent of sales revenue on marketing outperform the S&P 500 by more than 4 percent annually, with the top one-fifth of strongly branding companies outperforming their markets by 17 percent. They are also developing a formula that accounts for a brand life cycle and how that impacts growth.

However, you're underlying point is probably the most important of all. Communicators need a better understanding of business, measurement, and traditional marketing to survive in a world that is becoming more reliant on integrated communication.

I've saved this one for more thought when I have more time to see where it fits with the rest. Great stuff to consider.

Best,
Rich

[Valeria Maltoni]

Thank you for the additional information, Richard. My take is that today branding means more involved rather than just awareness campaigns. Either at lead generation level, or at social level, for example the Coca-Cola happiness project.

So we're getting closer and closer to the actual customers and prospective customers rather than being out there talking above their heads.

[Rich Becker]

Valeria,

Well, yes. The brand isn't about the product as much as it about the relationship to the project.

Ha. You make me wonder now if Credit Suisse understands this or if they swap between brand and identity.

Of course, in terms of blogs, etc. ... there is that matter of the objectives. Whereas my clients who have blogs are always considering customer experience, mine doesn't include that in its parameters.

It was a hard decision to make, but I had to follow my passion for education as a driver over customer experience. Or, perhaps, more correctly, I have a different "customer" in mind when I write posts and develop networks, etc.

Best,
Rich