Why marketing and finance need to work together
Marketing success and financial management—two seemingly distinct domains—are more intertwined than you might think. For small business owners, understanding how these two areas can work together is key to achieving common business goals. In this blog, I explore the link between marketing and finance and why integrating strategic financial management into your marketing efforts is crucial for long-term success.
Creating a strong brand presence and connecting meaningfully with customers requires more than just a good marketing strategy. It demands robust financial management practices to ensure resources are allocated efficiently, maximising impact and ROI. Here's why combining these two disciplines can lead to sustainable growth and profitability for your small business.
1. Understanding key performance indicators (KPIs)
KPIs are vital signs that indicate your business's health and performance. While often discussed in finance and management meetings, KPIs are integral to marketing too. They provide valuable insights into customer acquisition costs, retention rates, customer lifetime value, and net promoter score.
But they’re not easy things to calculate and need work to get in place. You’ll need robust data and tracking mechanisms set up to measure and report on these. In marketing, your most important KPIs will be your customer acquisition costs, retention rates, customer lifetime value and net promoter score. You can then complement these metrics with a suite of marketing metrics but paying attention to avoid dozens of vanity metrics that offer little value on the business impact of marketing.
Metrics are different to KPIs. They’re data points that are collected and analysed to understand how well marketing is performing. They certainly still have a role to play in marketing. They allow you to identify areas for improvement, allocate resources efficiently and are part of the story of measuring your day to day marketing activities.
2. Prioritise profit over sales
It's easy to become fixated on sales figures as a business, but they’re merely part of the story. The ultimate measure of success lies in profit, which reflects your efficiency in managing expenses alongside revenue generation.
Transition your focus from raw sales data to analysing profit for a much better understanding of your business performance. Thus marketing should be focused on products and services that are delivering most profit to the business, not increasing awareness or driving enquiries that are loss leaders. Of course, it depends on your business models but marketing must be aware of the profit margins across different products and services and ensure there is a positive ROI taking into account marketing costs.
Many service led businesses will have entry level products that yield lower initial profits in the hope of upselling and retaining the customer for a longer period to increase the average revenue per customer, thus the lifetime value of the customer. But it’s the role of marketing to map out your customer journey and ensure it’s a profitable and sustainable relationship.
3. Embrace analytics in marketing
Analytics provide a foundation for informed decision-making in marketing. They help you track leads, sales, and conversion rates, offering a complete picture of your marketing effectiveness. In fact data and analytics are top of the list when it comes to skills gaps in marketing departments. According to the Marketing Week State of B2B Marketing research, 68% of marketers surveyed say understanding data and analytics has become a more important skill over the past three years and it's emerged as the biggest skills gap in B2B marketing departments today.
Embrace data as a foundation alongside the creative aspects of marketing and spend time to get all of this set up in your business. Whether it's precise tracking of leads and sales or calculating conversion rates of your marketing campaigns, numbers tell a story about that drive your business forward. You may need to invest in the right infrastructure to measure this particularly as your business grows. But this infrastructure whether it be a CRM system or an email marketing platform, will allow your business to be more efficient and precise with marketing. You’ll have the whole picture and be able to make informed decisions about marketing knowing what’s working and what isn’t.
Marketing should also be in tune with sales conversion rates which finance may also monitor. Marketing shouldn’t just be focused on generating leads and enquires. They need to have the whole picture and understand what is converting and what isn’t. This is essential to calculate the marketing ROI.
4. Developing a customer driven marketing strategy
Marketing goes beyond promotions—it's the art of forming lasting, profitable customer relationships. Understanding customer motivations through close examination of what's driving your marketing figures enables you to develop strategies aligned with their needs.
Customer research can help you to develop and stay in tune with your customers so you know what they want and what they need and continually evolve your business to reflect this.
Customer research and market research should be done on a regular basis and shouldn’t be seen as a luxury or a big expense which accountants and finance managers may see it as.
This research should be done at least annually so you’re in tune with your customers and their evolving needs and is the future of your business ensuring you’re not wasting valuable resources or budget in the wrong areas. You can do this relatively simply and cost effectively through automated customer satisfaction surveys or through more in-depth research. More in-depth research is recommended in business to business, particularly with high value sales where the decision making process is more complex.
5. Effective marketing budgeting and forecasting
Precision in tracking and budgeting for marketing is essential. Allocating a minimum of 5% of projected turnover is advisable, increasing for start-ups requiring more exposure. Ensure that marketing are involved in budgeting and agree the marketing budget for the year. If marketing are excluded from the process – which is often led by finance and or the owner of a business, then often marketing are left with a budget which isn’t realistic and put marketing in a vulnerable position where they can’t do their job and the demands that are placed on them and the objectives set aren’t possible to achieve.
Thus avoid reactive spending and not having a marketing budget together. Working this way will lead to you over spending in the wrong areas and having sufficient budget where you need it most.
Evaluate your marketing budget monthly to accurately reflect changes. Budget assessments act as your financial weather forecast, enabling proactive measures to mitigate risks.
6. Enhancing customer lifetime value in marketing
Get familiar with customer lifetime value—this metric should inform profit forecasting and strategic allocation of marketing.
So what does it mean? Customer lifetime value measures the average value of the customer in the entire length of the relationship you have with them as a business. This can be harder to calculate as a start up businesses as you won’t have any historical data to use, but you need to set some targets and make some assumptions in order to work out your business model and for your business to be profitable
Your aim as a business should always be to increase customer lifetime value. How do you do this? You can implement strategies such as customer surveys to improve customer satisfaction thus retention levels so you’re increasing the length of a relationship. You also should be thinking of a range of retention levels – don’t make the mistake in marketing to just focus on leads and customer acquisition. You need an annual retention programme which contains ongoing communication through newsletters and events and then weave in the right mix of relevant upselling and cross-selling initiatives. Customer loyalty programmes should always be considered. These techniques foster stronger connections with customers, generating increased value and loyalty, crucial to driving long-term profits.
Uniting finance and marketing
Finance and marketing are both striving to achieve the same goal—sustainable business growth and increased value. By integrating financial management with marketing strategies, small businesses can enhance customer engagement, drive profitability, and ensure long-term success.
Uniting marketing and finance is essential for businesses that aim to scale and be profitable. This partnership fosters transparency and growth, ensuring that your marketing efforts are not just creative but also financially sound. By incorporating these practices into your business, you pave the way for more reliable, strategic decision-making, ensuring sustained growth and profitability.
Read more from the blog including my sales and marketing glossary and how to prepare a marketing budget or why not subscribe to the Sharp End for regular tips on marketing your small business.
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