Moving Marketing from a Cost to Revenue Center

Depending on the organization in which it exists, marketing can take on several personas.  Sometimes it is reactive and operationally oriented, managed by a “hair on fire” type of marketing manager.  Other times marketing is a strategic asset, providing leadership to the entire organization while executing a visionary marketing plan that aligns beautifully with corporate strategy.

At the operational end of this spectrum, marketing at best delivers incremental value, and it constantly struggles to justify its budget and existence.  At the strategic end of this spectrum, marketing is a major driver of the organization’s success; it can easily prove its worth and it rarely has issues justifying its existence or the investment made in it.

Moving Marketing from a Cost to Revenue CenterMost marketing organizations aspire to become more relevant by shifting to the strategic end of this spectrum.  Financially, this shift is about moving from the perception of a tolerated expense to a valued revenue center.  This shift must continue if marketing wants to keep its seat at the “big decisions” table, but the velocity of this shift at times seems glacial.  Propelling progress are the improved systems, tools, methods, channels, skills and leadership that marketers are developing or exploiting.  Creating drag against progress is an increasingly complex marketing environment, the difficulty of attributing marketing activities to business results, and sometimes simply the culture within organizations that marketers serve.

Demand Metric recently conducted a study, “Marketing Report Card: Keeping our Seat at the Table” to explore marketing’s evolution from a lead generation service bureau to a strategic, center of influence and revenue engine. The study results provide insights into how marketing can move toward the strategic end of the spectrum.

Current Perception of Marketing

At the start of any journey, knowing the destination is important.  Equally important is knowing the starting point.  For marketing, that starting is recognizing that 67% of participants in the aforementioned study perceive marketing as either an expense or at best a break even cost center.  Wise marketers understand that this isn’t an ideal perception.  To exist as an expense puts the marketing function in jeopardy, keeping it on the short list for cutbacks when financial pressures arise.

The irony is that while marketing is viewed by the majority as an expense, the picture changes dramatically when the same group of study participants was asked to assess marketing’s contribution to achieving business objectives: 67% reported it was “significant” or “indispensable”.

What drives greater contribution?

For CMOs and the CEOs that manage them, the important question is, what drives greater marketing contribution?  The study uncovered some correlations to revenue growth that provide insights:

1.  Marketing skills.

Skills obsolescence is a concern for any professional, and marketers are no exception.  To fully exploit the ever-widening array of marketing channels, strategies and tactics requires continuing education.  Furthermore, the practice of marketing is growing more technical and data-oriented.  The study asked participants to rate the skills of the marketing team on a scale from one to seven, where 1= obsolete or lagging and 7 = state-of-the-art.

Skills currency poses a particular problem in that while most marketers agree that developing and maintaining skills is important, it just isn’t urgent.  For this reason, skills currency often falls to the bottom of the priority list.  It’s a mistake to let that happen.  Of the many things we looked at in this study that correlate to revenue growth, skills were at the top of the list.

The average skills assessment in this study was 4.8, but for just those participants who said their marketing function has a complete understanding of its impact on revenue, the average skills rating was 5.3.  The message here is clear:  organizations need to encourage their marketing teams to gain mastery of leading-edge skills, and marketers need to recognize the importance of skills currency and not fall behind.  It seems that everyone wins when marketing has state-of-the-art skills.

2.  Analytics.

Marketers have long known that analytics are important, but that doesn’t mean they have embraced them.  There is a critical distinction to make about analytics.  Marketers that are having the greatest success are using analytics with an open mind.  They define and track meaningful measurements, and let them guide marketing’s efforts.  Analytics is a hollow exercise when done simply in an attempt to justify what marketing is already doing.

The data for analytics is, for the most part, isn’t hard to find. It resides in the CRM, marketing automation and web analytics systems that most marketers already use.  If it’s not being exploited, it’s a matter of skills, priority or will.  Skills are becoming less of an issue as vendors are providing more robust analytics tools with their solutions.  Quite often, it simply boils down to a matter of will.  For marketers who want to earn a seat at the big decisions table, or keep the one they already have, an analytics process is imperative.

3.  Alignment.

Alignment means that marketing and sales share the same goals and effectively work together to achieve them.  Alignment also indicates if sales and marketing exist in organizational silos – the greater the alignment, the less likely these functions are “silo-ed.”  Leadership, organizational form and culture have much do with alignment and the existence of silos.  Systems do as well:  Demand Metric’s “Sales & Marketing Alignment: Benchmarks, Insights & Advice” reveals that the use of both CRM and marketing automation – with a high degree of integration between them – helps keep marketing and sales aligned.

4.  Strategic orientation.

Marketing teams need a strategic orientation.  The reason is simple:  operationally oriented marketing teams can’t lead well; only strategically oriented ones can.  No marketing leader deliberately chooses an operational orientation for the team, but it happens.  It’s usually the result of the marketing function lacking clarity about its own marketing strategy.  In the absence of a plan, it becomes difficult to say “no” to the many requests that come to the marketing team from all over the organization.  Without realizing it, the team becomes totally response driven, even realizing that some of the things it is doing don’t make a lot of sense, but it’s hard to turn away people asking for support.  When there’s no plan to guide marketing’s efforts, it can quickly become operationally oriented.  It takes strong leadership to orient the team strategically, set a course and stay on it.

Getting to Revenue

The journey toward a more strategic, revenue-generating marketing organization goes through skills, analytics, alignment and strategic orientation.  When asked about boosting marketing’s performance, however, most marketers don’t provide this list.  Instead, the top three most frequently cited changes perceived to help the marketing team improve its performance are perennial requests:  more staff, more funding and more systems or infrastructure.

Here’s the surprise in the data from the study I’ve frequently cited here: additional funding and additional staff did not correlate to revenue growth.  Conventional wisdom tells us that with enough staff, funding and resources, the marketing team can boost its performance.  In fact, the majority view of both the marketers and non-marketers in this study is that marketing is understaffed and underfunded.  However, the data speaks to where we should invest if we really want to drive revenue growth: skills, analytics, alignment and strategic orientation.

These 4 areas of recommended investment – and the systems that enable them – are the cornerstones of the foundation for a marketing team that is a true revenue center.  Investing in skills, analytics, alignment and strategic orientation will get marketing a seat at the big decisions table, and keep it there.  The marketing organization that gets these right will have adequate staffing and funding for marketing, because the business case is easy to make when its based on measurable results.

Category : Marketing

About the Author: Jerry Rackley

Jerry Rackley is Chief Analyst for Demand Metric, a professional community of 22,000+ marketing professionals and consultants. His 29 year career allows him to advise from a rich base of experience. Rackley also serves as an adjunct faculty …

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