When presented with any new proposal, the senior director of a famous merchant bank would ask “will it make a shilling?” In other words, how will this proposal assist in producing profit? The purpose of every business, including not for profit organisations, is to make money for the benefit of the owners and the staff, by satisfying customer demands. However, to “make a shilling” requires the market to want to buy the product, and the organisation to make a profit on its sale.
For the commercial manager, responsible for producing profitable income, being able to show how investment will satisfy customer demand and “make a shilling “ is of vital importance. Understanding how all elements of the business which are involved in customer satisfaction contribute to generating income is essential for the effective management of the business assets engaged in customer satisfaction. When faced with demands to justify the money invested and to quantify the return on investment, Commercial managers need to be able to demonstrate the importance of the all the customer related activities involved in the production of profitable income,
Peter Drucker the world famous management consultant said “if you can’t measure it you can’t manage it”. While that statement remains true, the statement refers only to the management of resources, it does not refer to the generation of profitable income. When considering the efficiency of a marketing organization, many companies invest far more than they realize in getting and maintaining their business with little attention to the return on their investment.
Is your marketing effort really cost effective? If your answer is yes, then how do you know? Does your organization actually measure the return it gets for all the money it invests in getting and retaining business? These are questions that everyone in business should ask, yet it would appear that few do so. Of those that do ask the question, it is probable that few would have a useful answer.
Measuring actual sales and revenue performance against the planned objectives of the marketing plan is vital. Reporting on the business performance on all the activities that provide direct and indirect support to sales and customer satisfaction which includes virtually everything from warehousing to credit control must include analysis of all the costs involved. Commercial managers need to clearly demonstrate their return on investment by measuring marketing performance as a whole, in terms of financial inputs and outputs comparable with other business areas.
By measuring marketing performance, strengths and weaknesses can be exposed, necessary questions asked, and assumptions questioned. Only then can clear strategies and actions be put into place to ensure the long term continuity of profitable revenue, which is the prime objective of the marketing organization and the manager of marketing in particular.
Commercial managers should report on the general performance of business getting activities in terms of:
* Orders: number, average value, total value
* Enquiry/quotation conversion rate
* Quotation/order conversion rate
* Analysis of lost orders
* Order/delivery time
* Invoice to payment time
* Total marketing cost per order
* Operating Profit
* Net Profit/unit sale
* Stock Turn
* Growth in Customers
The term “Return on Investment” (ROI), is often confused with the term “Return on Marketing Investment” (ROMI), but these terms should not be interchangeable. Return on Investment (ROI), refers to the net income divided by the capital employed… The term “Return on Marketing Investment,” (ROMI) is generally used to measure the financial performance of specific marketing activities such as an exhibition or advertisement. Because it is difficult to identify which sales are attributable to which activity, ROMI is generally limited to measuring specific marketing investments, and is not readily applied to the marketing function as a whole.
Commercial managers should always ask;
* Are we making income and how much?
* Are we making profits and how much?
* From where do the profits and the costs arise?
* Is the market growing or shrinking and at what rate?
* Are sales and profits growing in line with or different from the market?
Producing income costs money but is it really profitable income? How do you know? It is the commercial manager‘s responsibility not only to produce the business income but to demonstrate that necessary investment is cost effective and the resulting income is profitable.
© N.C.Watkis, Contract Marketing Service 09 Dec 22