Why Aren’t Marketing Departments Run on a P&L?

Jay Baer has it right. Baer is a marketing consultant, speaker, and the author of book, Youtility. He said, “Make your marketing so useful people would pay you for it.” It is a wonderful notion. The quote gets at excellence in marketing while holding the practice accountable.

It is strange that most marketing departments are structured so loosely. I am not talking about the organizational structure. There is far too much written and explored on that topic. I contend that the organization of a marketing department would become extremely clear, efficient and effective if it was subject to being its own profit and loss center.

Instead the vast majority of marketing departments get a budget. The team executes within that spend and produces mediocre results for the most part. The next year the budget gets a little bump to reflect inflation and higher costs. This cycle repeats until the CEO removes the head of marketing due to vague results.

I have run global marketing teams and advise companies on how best to set-up their marketing organizations. In chats with CEOs and CMOs I passionately suggest the P&L route. CEOs love it. CMOs not so much. That is too bad because it would make marketing so much better and would weed out the real good CMOs from the ones who bluster and obfuscate. This move would have positive impact on CMO turnover.

If I held the position I would demand it. I would want to know where I stand and to have proof points when my employer evaluates performance. This is how I would set it up:

  • The key measurements must umbrella awareness and sales. Marketing cannot shy away from owning conversion. Conversion rests between awareness and sales. It is the simplest and richest way to measure marketing effectiveness. Such a move will help remove the traditional line between marketing and sales.
  • All marketing investment and expenses should be tracked by key categories (e.g., creative expenses, promotional expenses, campaign expenses, overhead expenses). This way you can apply benchmark ratios, such as cost to acquire a new client, lifetime value of a client and advertising spend to net sales dollars.
  • Lastly, walk into the CEOs office with a statement of gross demand and net demand. This will show marketing’s worth through top-line and bottom-line results. It will clearly display the best opportunities for growth and point to most attractive marketing investments.

The P&L approach measures the financial viability of campaigns, the marketing organization, quarterly and annual performance. It will dictate the marketing organization’s structure. It will turn your marketing team into a lean, mean strategic and creative machine. Ambiguities will be eradicated. If done right and rigorously, you will find that the traditional marketing plan will go out the window and you will begin using a more dynamic and valuable go-to-market approach that enlists your entire company in marketing not just the marketing department.

Marketing has long thought its job is to create awareness and hopefully grow the top-line. I say “hopefully” because marketing largely operates on hope versus financial rigor. Marketing’s job includes guarding and growing the bottom-line. The P&L approach is the best way to make this happen.

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