Advertising and marketing’s Ignored Contribution To Money Circulation
The specific contributions of marketing to an organization's success are rarely found in balance sheets or profit and loss accounts. This makes it easy to overlook or ignore the role of marketing as the foundation of a thriving business. However, read the CEO's letter to shareholders in most annual reports, and two marketing-related results almost always represent growth and cash flow. If you combine growth with cash, you get an incremental cash flow. The ultimate measure of marketing's contribution to a company's success is its ability to generate an incremental cash flow, that is, a cash flow that goes beyond what would be achieved without marketing activities. This implicitly means that the contribution of certain marketing expenses or activities should be measured by their incremental cash flow.
Three way marketing generates cash flow
Companies generate cash flow from operations in just three ways, and all involve marketing. The cash flow is increased by winning new customers while maintaining customer loyalty. This is the typical expectation of the marketing function. Unfortunately, marketers and others often stop counting customers or sales rather than measuring the marketing contribution to what the company calls incremental cash flow. Marketing also generates money by increasing sales volume, either by taking shares away from competitors, or by increasing the size of the market, by increasing the frequency of use of products or services by existing customers, by new uses or new uses suggests. Marketers regularly report market shares and closely monitor changes in market shares, but rarely are such changes in shares or frequency of use translated into incremental cash flow. In many companies, marketing increases cash flow by selling more different products and / or services to existing customers (increasing the share of the wallet) through cross-selling to customers who have already been determined to be ready to do business with the company. Marketers indicate the number of customers, the number of sales per customer, or similar metrics for successful results. But here, too, these results are rarely translated into what companies ultimately have to report, namely cash flow.
Why marketers miss the most important metric
Marketing professionals often focus on the number of customers, market share or sales, as these measures are relatively easy to obtain, have a clear meaning and are relatively difficult to falsify with honest reporting. These are usually measures that marketers have some control over and are useful measures. They are simply incomplete and do not represent what a company has to submit as part of its reporting obligations. It is also natural to focus on what you have some control over. Cash flow is both a function of cost and revenue. Marketers are often less aware of and less in control of costs. It is often difficult, but not impossible, to link certain marketing expenses (costs) to the earnings they generate. Some marketing campaigns have both long-term and short-term effects, and some marketing activities are expressed in the willingness of customers to pay a price premium and in the start of a sale.
Getting started with cash flow is complex and may not be as fun as developing the next advertising campaign, but it is possible. As long as marketers are unable and willing to put the results of their efforts in terms of cash flow, or more specifically incremental cash flow, marketing will continue to be seen as a cost factor, a tactical function and decoupled from key financial metrics Notification required. Marketing's contribution to growth and cash flow is ignored until marketing takes responsibility for telling the story of how its spending and activities promote growth and cash flow. This would represent an effective marketing of the marketing.
ContriDavid Stewart, Professor of Marketing and Commercial Law at Loyola Marymount University, author, Financial Dimensions of Marketing Decisions.
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