Earlier this week, the pound fell to a record low as markets reacted to the UK government’s biggest tax cuts in 50 years.
Sterling fell almost as low as $1.03 on Monday before regaining some ground to stand at $1.08 at the time of writing. With further tax cuts expected from Chancellor Kwasi Kwarteng in the not-too-distant future, where we go from here remains unclear.
But what does this all mean, and what has it got to do with marketing I hear you ask?
Well for starters, it means my trip to Norway later this year has just gotten a lot more expensive… maybe Turkey would be a better idea. Aside from my holiday plans though, it means that businesses that trade internationally and import goods and services from overseas are having to pay more to do so, and businesses that manufacture domestically are facing greatly increased costs for energy and labour.
Paying higher prices tends to lead to budget cuts elsewhere, and when businesses start looking to cut costs – it’s often the marketing departments that are first to see the axe swinging towards them! (especially in the B2B construction, manufacturing and tech markets that we tend to operate in – more of that later).
And now we see how the dots connect:
Weak pound = higher costs = budget cuts = bad news for marketing departments
Always look for the good in the bad
This all sounds very negative but it doesn’t need to be. As the Greek philosopher, Heraclitus, once said; “change is the only constant in life”. Once we accept that we can’t escape change then our only option is to adapt and improve – and that realisation can be quite exciting.
So, let’s talk about change. It’s not a secret why marketing budgets are the first to be cut, there’s a reason for it, several reasons in fact:
1. Marketing is often seen as an optional expense, meaning it can be mislabelled as ‘non-essential’ to the operations of the business and can be perceived to be cut with minimal impact
2. Effective marketing budgets are often large and there’s a perception that cutting marketing activity can have an immediate impact on the bottom line
3. And finally, the big one: it can be difficult to show the return on investment that marketing spend brings into the business
The proof is in the return
That’s where the real opportunity is for marketers to adapt and improve in response to the economic situation we find ourselves in, by demonstrating real financial value, or in other words – a return.
There are many businesses and marketers out there that do this incredibly well already, these brands are the ones we’ve all heard of; the ones that lead their categories, and that deep down… we’d all secretly love to work for. But the reality is that very few marketers I’ve met come from a data or finance background and instead are usually more creative or brand focused.
Then, when the eventual pressure comes from the finance department or CFO to make cuts, those marketers who don’t have a solid grasp of their numbers, may not have the data or may struggle to validate the revenue that they bring to the business.
Maybe now, more than ever, is the time is address this.
The average rate of return
Before we look at calculating a return, we first need to establish what is considered a healthy return. To start with, the Return on Marketing Investment (ROMI) should ideally exceed 100% – meaning that the revenue you’re able to directly attribute to your marketing activities shows a clear profit.
According to Forbes, the average long-term stock market return is 10%. So, if you’ve never been able to calculate a return on marketing investment before, it might be worth taking this figure as start point which you can then build from.
If you’ve decided that you need to demonstrate the value that your department brings to the business, then keep reading and we’ll look at an example. If your budget for the year is set at £1million (including operating costs), your initial goal could be as follows:
1. Generate £1.1million in revenue from directly attributable marketing activity (this is assuming that in most B2B businesses, there will be revenue generated through several additional sales functions).
2. Ensure you have the right tools and support to track, evidence and then demonstrate that calculation.
If you can successfully do that, then you start to change the dynamic of how marketing is seen within the business. You’ll no longer be a ‘non-essential’ expense – you’ll be a core function that drives real commercial value.
From there, it’s a case of redefining what success looks like. A 5:1 ROMI ratio is considered a good target to aim for as this takes into consideration the average cost of goods for most businesses. But you’ll need to define for yourself what a reasonable target should be based on your own business.
Climbing the mountain
Let’s face it, it all sounds easy in theory but when you’re stood at the foot of the mountain staring up at the imposing challenge ahead of you… sometimes it’s easier just to wander back to the tent and put the kettle on.
Especially when you’re in a B2B market where the connection between revenue and marketing can be hard to establish (don’t you just wish you sometimes worked in ecommerce… ad, click, buy, done – sounds so simple).
In B2B marketing, it’s not as straightforward, and can be quite a daunting task, but if you’re willing to take on the challenge, we’ve broken down your next steps into easy bitesize chunks:
1. To start with, you need to address the disconnect between sales and marketing within your business. Sales teams often complain that they don’t get enough quality leads, while marketing teams are often unhappy with the lack of visibility when the leads are handed over.
2. To do that, you need to harness the power of data. We live in the age of data, and marketers that leverage this to inform their decisions are the ones that succeed.
3. Invest in the right system. With the right tools, it’s possible to track every interaction a prospect has with a brand, from that first visit all the way through to when they become a paying customer (it’s also a lot more affordable than you might think).
4. Once you have full visibility of that data, you’re now in a position to define the metrics required to measure your team’s impact and provide the holy grail of marketing KPIs – the Return on Marketing Investment (or ROMI).
The process is straightforward, but it does require time to implement, as well as the buy-in from other departments from across the business. I’m sure there’s probably a joke in here somewhere about how ‘ROMI wasn’t built in a day’…
When you summit that mountain, the benefits are absolutely worth it – each data point across marketing and sales, becomes a valuable asset that can be leveraged to further drive performance. By establishing feedback loops from sales, your marketing function can continue to improve impact and to increase revenue growth long into the future.
The best time to start was yesterday, the next best time is – now.
