Explanation of current turnover
When the company of which I was a director came into the hands of an investment company, their first question was “Why is the turnover only xxx?”
A question to which I had no answer at the time. We had not made a proper diagnosis of our turnover. We knew how big the market was (it was clearly defined), but we didn’t know how much revenue we could get from it. The question was answered within a few weeks and immediately translated into activities. Within a year, the company was sold for double the value it was bought for.
We looked for and found the answers in our marketing strategy and activities. We were too focused on selling our current products to existing and similar customers. But we overlooked the needs of our customers’ customers. And especially how we could respond to this with a new product. After the introduction, turnover increased significantly. Together with my marketing manager and finance manager, we learned an important lesson here: marketing has a direct impact on business results and valuation. From then on, finance was closely involved in all marketing expenses, further increasing the company’s value.
To explain the current turnover, a clear diagnosis of marketing strategy and tactics must be made. In other words, learning from the decisions that have been made, so that new decisions can be made better. In this learning process, it is important that there is a culture where no scapegoat is sought afterwards; if the outcome had been known in advance, the winning state lottery ticket would have been bought long ago.
The above question (‘Why is the turnover only xxx?’) is the right start for a marketing diagnosis. Many marketing plans work toward a recalibration of the marketing strategy because the current one appears to be or will not provide adequate results. A valid reason, but the question ‘Why is our revenue only xxx?’ rarely answered.
The problem with these marketing plans is that they are often one-off. They are prepared on behalf of or because of a study, making ad-hoc analysis, whereas an organization is a living organism that is constantly changing. This is not to say that an ad-hoc analysis is wrong, but compare it to just a one-off ‘check-up’ with the doctor. Today nothing can be found, but it is no guarantee that nothing can happen in the near future.
To make a correct diagnosis, it is important to determine critical success factors (KPI, Key Performance Indicators), which are available periodically (daily/weekly/monthly) and discussed with all stakeholders.
KPIs must be unambiguous and have a direct connection with the day-to-day business. If revenue growth is the goal, then two KPIs are sufficient: additional revenue from existing customers and additional revenue from new customers. Do this weekly and you will soon have an idea of whether you will meet, exceed or fall short of the goal. Many organizations do this.
Why is turnover increasing?
The most important thing is that you can explain the last period’s KPI, regardless of the outcome. Why was the turnover last week xx? Evaluate all marketing activities and try to find out why customers have bought or not in the recent period. Work closely with other departments such as sales. Has turnover increased dramatically because discounts have been given? Then check with the finance department if this revenue with discounts is still achieving sufficient margin and/or causing cannibalization. If you reach many new customers with your promotional campaign, it makes sense to intensify it in the coming period. Be honest so that the right measures can be taken to achieve the goals.
In a larger organization it is advisable to work with different KPIs per level. These must of course be related to each other. If revenue growth is a top management KPI, marketing will have KPIs in terms of new customers, increased use of existing customers, and volume share. Market communication then has, among other things, a KPI on awareness and attitude. Here, too, a periodic diagnosis must be made with a calculation of the KPIs. Only then are you in ‘control’ of the marketing process.
Being in control
The essence of marketing is to predict future sales as accurately as possible. Knowledge of the market and own position in it is essential. In which market(s) is the organization active and what are its characteristics: an upward, stabilizing or downward trend? The prediction is essential, and therefore it is also important that marketers talk to many parties in the market and do research. Marketing is therefore really a process or system that can be controlled.
Investors and also banks look at three things in a company:
- The attractiveness of the market or markets in which the company is active;
- The company’s relative competitive position;
- The strategy and management of the company, measured by the results of recent years.
Companies that reach their budgets drawn up in advance year after year are in any case in control of their (marketing) processes. The shareholders can adapt their desired return to this, whereby a lower return with low risk and a higher return with high risk are expected.
It is Marketing’s job to determine whether the company’s performance (in terms of revenue group achieved and/or return, depending on the market) is or is not in line with the market. If a company underperforms in a market, it becomes a takeover target or may eventually be forced out of the market itself. And it is not always on the demand side, a number of companies (eg solar panel installers) could realize much more revenue, but are held back because there are not enough solar panels available and/or suitable staff to install them.
A company’s marketing function is tested in a marketing due diligence, where it is examined to what extent marketing constitutes and will contribute to a stable future income. The book review “Marketing is not a black hole” gives a good overview of what marketing due diligence entails; I want to highlight one aspect here: pricing.
It is well known that price regulation has the greatest impact on a company’s profitability. In order to adjust the prices, preferably upwards, the marketer must first know exactly the perceived value of the product (see “The price was right, wasn’t it”) or, in a B2B market, know exactly what the benefit of the product is. . product. With the current high energy prices, you can safely charge a little more for the installation of solar panels. However, competition limits the extent to which you can raise prices. It is up to the marketer to build a multi-benefit brand with a sustainable competitive advantage that justifies a higher price, thereby realizing an ongoing higher income stream.
Arrange an appointment with your finance colleague and tell him or her that you will compare the revenue of recent periods with the marketing efforts you have made. The goal is to be able to explain a cause and effect relationship. In a B2B company where Sales has an important role: invite them to this meeting as soon as you have done the first analyzes (and may already have explanations).
The next step you take with your finance colleague is to calculate your upcoming marketing campaign based on the diagnosis you made earlier. You intensify this collaboration through periodic consultations where you evaluate and make plans.
This is the foundation of your marketing process and system that allows you to better predict tomorrow’s revenue. You can read why it’s so important in Part 2, which will be published on Monday 24 October 2022.