The economics of B2B marketing and growth strategy

Ed Marsh | Dec 30, 2014

growth_strategy_requires_sensible_investment_in_marketing

me: "Why did you discount the price?"

sales rep:  "Because I heard that they're in financial trouble and if they go bankrupt I didn't want us to have as big an exposure."

That's an actual exchange from the #TruthIsStrangerThanFiction category of sales management.

Amusing and alarming at the same time, that exchange highlights one of the real challenges facing B2B manufacturers seeking revenue growth.  A lack of P&L based business understanding among marketing and sales types has two negative impacts.

First, it impedes their ability to market and sell effectively because their presentation never quite resonates with the folks that have to make the tough decisions.  Second, the discussion of internal resource allocation is distorted.  Manufacturing shows up to budgeting meetings with air-tight justifications for new capital equipment tied to corporate growth strategy...and marketing shows up with a wish list.

Marketing as a tax break?

I recently came across an article in FastCompany which suggested that companies ought to throw substantial year-end dollars at marketing.  The rationale was that, just as many companies accelerate capital equipment purchases to finalize them prior to year-end, companies could similarly accelerate their investment in marketing to claim the expense against this year's profits come March 15th.

Although I strongly believe that most B2B manufacturers substantially underinvest in marketing and overinvest in direct sales (failing to recognize the shift that has occurred as buyers navigate most of their buying journey without speaking to sales reps), I'm skeptical of anyone simply spending on marketing because it will only cost them 65% net (assuming approx 35% C Corp tax rate.)

Further, companies don't pay for a year's marketing in advance, so the end of year time pressure seems contrived.

Finally, I'm always struck by how few companies really see marketing as an investment under any circumstances.  It's almost always viewed as a straight expense - and often one of the first to be cut during lean times.  In contrast with sales expenses, which according to GAAP are treated just like marketing but which in practice are viewed almost as a cost of goods, marketing is seen as a cost with unquantifiable return.

"Write-off"...Freudian slip?

As the article described the opportunity to "write-off" the marketing expense against profits, I couldn't help hear echoes of a different sort of write off - business owners who chalk much of their marketing spend up to wasted sunk costs rather than an investment in their growth strategy.  Marketing folks tend to kick their trashcans and curse the ignorance of finance and management types who ascribe such little value to the important work of marketing.  In reality the marketers bear much of the responsibility for that dismissive perspective.

Rarely can marketers present a detailed, closed loop accounting of the precise impact of each dollar spent, and each activity undertaken.  When they do, naturally they focus their efforts on activities which generate superior results in support of the company's growth strategy.  But when they don't, they focus their efforts on the latest trend, cool design, the stuff they enjoy, or the boss' pet project.

And therefore management is not only entitled, but correct in treating marketing as an expense and scoffing at the assertion that it's an investment.

Invest for return

It's time for companies to start to invest in marketing using the same process as for any other investment decision.  Depending on the capital available, the cost of that capital and the return the business expects, it should be easy to compare projects and select those that will be funded.  Period.

Of course to do this companies must have clear metrics reflecting the profit impact of marketing activities.  Most don't.  That may be simply because they lack some of the tracking and reporting tools to do so.  But more often (especially since rigorous continuous improvement, common among those that do, requires such tools) it's because marketing isn't prepared to be held to that standard.

But that's where business is headed.  So instead of tax accounting magic and vacuous justifications, it's time for companies to implement B2B sales and marketing approaches to support their growth strategy, and to incorporate analytical and marketing automation tools to support sound decision making and continuous improvement.

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image - fastcompany