It’s not the sexiest of titles I admit but assuming you have read this far, may I humbly ask a couple of favours: one, that you read to the end, and two, that you possibly send a copy to your CFO.
The topic is an increasingly widespread issue; namely, the ratio of ‘non-working’ marketing spend vs ‘working’ marketing spend. The basic premise is that anything that goes towards direct consumer communication (such as the creation of ads or the purchase of media space) is ‘working’ and therefore good, whilst any other spend is, by default, ‘non-working’ and therefore bad (this could include everything from agency fees to data, research and analysis).
The first problem is that this view is arbitrary, simplistic and reflects a view of marketing that has no place in 21st century marketing accountability. After all, there is often a substantial level of wastage in ‘working marketing’ or spend that either delivers no business benefit or costs too much for the value it delivers.
The second problem is that reputable accountancy firms are advising boards that there is a ‘correct’ ratio for these two kinds of spend, thereby providing a set of potentially erroneous and intellectually lazy guidelines. One client recently told us that they had to cut back spend in ‘non-working’ areas to align their marketing costs to an 80:20 ratio (‘working’:‘non-working’) as advised by a Big Five accountancy firm. The result was a reduction in the amount they could invest in improved understanding of marketing effectiveness and efficiency.
This is just plain silly. Why? Because if investment in measurement enables you to achieve the same results for a lower spend, it’s a mathematical inevitability that you will see an increase in the ratio of ‘non-working’ marketing spend.
“Let’s do the math”, as they say in the States. Imagine a business spends $8m a year on ‘working’ marketing, as defined by the accountants, and $2m on ‘non-working’; thereby passing the ’80:20’ test and receiving the accountants’ seal of approval.
If ‘non-working’ spend helps identify efficiencies that enable the business to cut the ‘working’ budget by $1m, the result is a ‘working’:‘non-working’ ratio of 78:22 ($7m: $2m). In order to conform to the 80:20 rule, ‘non-working’ spend must now be reduced by $250k or 12.5%.
Now, I’m generally a fan of accountants – businesses need sensible financial discipline – and it’s wrong to think of them as ‘bean counters’: but what we are talking about here isn’t ‘bean counting’, it’s accountancy by Mr Bean! It means the wrong decisions are being made for the wrong reasons with a direct impact on the bottom line.
FAO your CFO…
So, if you are a CFO who is reading this because someone left it on your desk or e-mailed over a copy here are three things to consider:
- Investment to discover how marketing investment is influencing business performance (i.e., the ‘effectiveness’ budget) is not ‘non-working’ marketing spend – it should very definitely be ‘working’ for you!
- The effectiveness budget should be signed off and owned by the Marketing Director as a sign of commitment to accountability.
- A CFO should insist on seeing the findings from the ‘effectiveness’ work to increase his or her understanding of the business case for marketing investment – after all, marketing is often one of the biggest lines on the P&L.
Andrew Challier is Ebiquity’s International Practice Leader – Effectiveness