We interviewed more than 300 US marketing directors to find out what causes them the most difficulties in their operations. The answer “to demonstrate the impact of marketing campaigns on financial results” won by a wide margin.
This is a longstanding issue for marketers. They want to demonstrate the impact on financial performance and thus share responsibility for business results, gain the respect of management and ensure future investments, but in marketing the calculations are often less accurate than in other areas of the business.
How can marketers solve this difficult task? We looked at the problem from two sides and consulted with marketing directors who are trying to demonstrate their influence on financial results, and with financial, operations and general managers who are trying to make effective decisions regarding marketing investments. Considering both points of view, we came to the conclusion that the following eight steps can be very useful.
1. Start with commercial value. The task of demonstrating the impact of marketing on outcomes often leads one to think about accurate calculations, sophisticated dashboards, and irrefutable correlation of financial results. But focusing only on what is most measurable means underestimating the full return on marketing. We believe that marketing directors should have a better understanding of the commercial value that they create for the business.
As part of their functions, marketing directors often play different roles in creating commercial value: they create growth opportunities, act as catalysts for innovation, conduct customer focus policies, create new opportunities and manage a corporate brand that serves as a magnet for talented personnel. In addition, they influence commercial value beyond their authority, working with other top managers to promote the company’s strategy and course of the CEO. Marketing executives need to evaluate their impact on a large scale to cover all the possible aspects of the benefits of marketing to the organization, and then you can consider benchmarks.
2. Understand what commercial value means for each functional unit of the company. Marketers must “translate” the definition of their contribution to value creation into the language of the various functional departments of the company with which they interact. For the sales department, the commercial benefit can be determined by revenue growth, for the finance department, by turnover, price, profit or cost management, and for the supply and logistics department, by predictability of demand. Responsible for marketing should adapt their impact indicators to the most relevant parameters for each functional unit and find other indicators that are interesting for the respective units. For example: customer reviews – for the sales department, positive trends and changes – for the financial department, better forecasting and the ability to minimize inventory shortages – for the supply and logistics department. Of course,
3. Know your own benchmarks. Demonstrating the impact of marketing campaigns on financial results is not only about benchmarks, but at some point you will need them. Most marketing managers have a set of key performance indicators that they use to demonstrate their impact on financial results, and it’s very important to have a good idea of them. This will require not only a spreadsheet with the results, which can be shown at a meeting with senior management, but also a deep understanding of how benchmarks are calculated. For instance, what costs were included as an investment to calculate the return on investment in marketing (MROI) – campaign costs or staff costs? What was taken into account in the return on these investments – increased profits or revenue growth? What is taken as the basic financial results (in the absence of marketing campaigns)? What is the time frame for evaluating the impact of marketing campaigns? Why does such a choice seem appropriate?