Marketing finance is a challenging area, with issues in properly collating, calculating and analyzing the data, and many

KPIs, metrics and measurements involved. Marketing Finance Challenges

Revenue attribution challenges Cost allocation strategies, variable costs, fixed costs and shared costs Building an investment case using Net Present Value (NPV) Return on Investment (ROI) and Return on Marketing Investment (ROMI) Metrics Covered: ROI, ROMI, Economic Value Added (EVA), NPV, Revenue, Net Profit, Payback, Margin, Variable Cost, Fixed Cost COGS - Cost of Goods Sold
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Cost of manufacturing or buying a product Third party costs directly attributable to an order Cost of services harder to determine but may be estimated using timesheets & loaded costs For example, in Retainers Most COGS costs are Variable Costs

Metrics: Gross Profit, Gross Margin The Question: What is my profit after paying for the goods I sell Approach: Calculate the COGS (Cost of Goods Sold ) & deduct from Revenues Commentary: The classic form of British Empire accounting, used by merchants to calculate the margin they make after they buy goods at wholesale or discounted price & sell at a retail marked or up priceThe Formula Gross Profit = Revenue - Cost of Goods Sold (COGS) Gross Margin = (Revenue - Cost of Goods Sold)/ Revenue

SG&A - Sales, General & Administrative Expenses

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Shared costs that can't be attributed to a specific product or client. Sometimes called Cost of Business SG&A costs include: Wages, Rent, Utilities, IT & Telecoms, Office supplies, Brand advertising, Non-attributable promotional costs, Non-dedicated staff costs, Transport & entertainment, Training, Etc Most SG&A costs are Fixed Costs Metrics: Operating Profit or Earnings Before Interest & Taxes (EBIT) The Question: What is my profit from the companies operations Approach: Take revenues, both COGS and SG&A (Sales, General & Administrative) expenses Commentary: This formula includes both costs that can be attributable to products or services sold and general expenses such as staff, overheads & brand advertising, but not cost of capital or taxes The Formula: Gross Profit = Revenue - (COGS) - Sales General & Admin (SG&A) Gross Margin = (Revenue - COGS - SG&A)/ Revenue ABC - Activity-Based Costing Using timesheet systems, project resource tracking or allocation methodologies, we can determine how much of our fixed costs are dedicated to particular products, clients or lines of business We can use this approach to bring SG&A costs into COGS - or think of Fixed Costs as Variable Costs If we want to really get a full view on marketing profitability, then we need ABC or some similar approach How do you calculate your Marketing Financials?

What COGs expenses do you normally work with? What SG&A expenses do you normally work with? Are there cost 'issues' or 'unknowns' that you constantly grapple with? Do you have a standard cost accounting structure in place, such as ABC? Do you have ad hoc ways that you can suitably account for costs? Can you think of new/ better/ quicker ways?

What is Marketing Finance?

by Jonathan Knowles on March 20, 2010 I define Marketing Finance to refer to any effort to quantify the contribution of marketing to increased business value. This is because I am interested in marketing in its broadest and most strategic sense, namely as the creation, communication and delivery of customer value. The focus of Marketing Finance is therefore the quantitative measurement of any action designed to increase customer value. I am aware that this is a broader definition than others use where the term refers to the economic and financial modeling of marketing actions. The problem with this narrow focus is that it restricts the field of study to those marketing activities that can be explicitly modeled in terms of a supply and demand curve or directly linked to specific transactions. It excludes activities that are indirect in their impact (for example, investments in customer service) and/or take time to have an impact (for example, a change of corporate identity). Much of the focus of marketing performance measurement is on the near term. This is not because that is where the impact of marketing is greatest but simply because this is the time frame over which our measurement approaches are most developed. In that sense, I think of marketers fascination with ROI in much the same way as drunkards who have lost their keys think of lampposts. I see a clear business need for the articulation of the contribution of marketing to business value over the longer term, and via a coherent set of activities rather than just a single activity in isolation. In other words, the quantification of the contribution of marketing strategy to business value. From a Finance perspective, anything that causes a change in the profit, risk or growth profile of a business necessarily has an impact on business value.

Finance relies heavily on marketing to gain clients and connect with businesses . Finance works on dealing with peoples money, marketing is the driving force behind getting clients and getting notoriety

Marketing Finance Defined

by Jonathan Knowles on March 12, 2011 Marketing and Finance have traditionally existed in splendid isolation from one another. Two forces have pushed them closer together over the past 20 years. The first is the ascendancy of shareholder value as the language of the boardroom. The second is the increasing measurability of marketing. Together these two forces have led to the inevitable conclusion that the impact of marketing on business value must and now can be measured. As a result, the field of Marketing Finance is beginning to gain traction in academia and, to a lesser extent, among practitioners. I will be attending the second Marketing Meets Wall Street academic conference in Boston in May (the first was held two years ago at Emory) and am looking forward to hearing about the latest research being done to quantify the impact of different aspects of marketing on business performance and valuation. Our paper on Value Implications of Corporate Branding in Mergers is on the agenda. The relatively novelty of Marketing Finance as a field of study makes it inevitable that its exact definition remains somewhat cloudy. I fully expect that a certain number of the papers at the conference will make me scratch my head in terms of the practical applications of the research. As readers of this blog will realize, I use the term marketing finance in a broad sense to encompass all aspects of how marketing contributes to the enhancement of business value. I am consciously trying to keep the focus broader than Marketing Performance Measurement in order to avoid the measurability trap (an undue focus on the short term, because that is where the data is most abundant). This involves maintaining a focus on both transactions and relationships, on both the income statement and the balance sheet, on both the short term and the long term. It means maintaining a focus on how value is created for customers, not simply extracted from them.