If you scan the multitude of marketing software vendors out there, most are using the same two words in their appeals to Marketing and Communications teams. Those words are Cost Optimization.
Powered by software, these metrics and others like them have formed the Marketing and Communications’ response to the gross-level “cost optimization” that businesses have been applying to these two functions for years. It’s called the annual budget cut.
The problem here is that the current approach to cost optimizing Marketing and Communications is a dead end for all concerned. Here are 5 reasons why:
- It ignores the most important calculation. B2B Marketing and Communications are all about creating huge Business Value. Understanding your cost structure is critical, but for it to mean anything, it has to be calculated in light of the value you are creating.
- It can result in the wrong decisions. Let’s say that you’re governed by “cost per” thinking, which in real life means that your job and your bonus are tied to that KPI in some respect. You understandably would have a built-in bias against anything that increases your “cost per.” But let’s say that Sales asks you to more rigorously vet Marketing Qualified Leads because they’ve found their quality to be problematic. The problem is that if you really do that, your cost per MQL will skyrocket due to attrition and other factors. Your manager may not be happy. You may not get that bonus you are counting on. What would you do?
- It perpetuates the business problem. I’ve surveyed Fortune 1000 CEOs and CFOs for eight years about Marketing and Communications. They want to understand the ratio between the cash Business Value created by Marketing and Communications and what it costs to generate that value. The problem is that the cash Business Value created by these two functions remains unknown, unrecognized, and unrecorded in most B2B companies.
- It compares cash to non-cash outcomes. In a world that operates according to the income statement, “apples and oranges” comparisons don’t work. What this means here is that you can’t cost-optimize something where the cash-on-cash Business Value is unknown. What we often see is the attempt to compare dollars spent and the number of leads, or press coverage, or impressions – the list is long. But without an understood cash value for each of these Marketing and Communications outcomes and their impact on total sales productivity, the comparison is meaningless to the business. CFOs know this, and they wonder why many marketers don’t.
- It’s a “race to the bottom” until something breaks. What can be “cost-optimized” once can be optimized again and again. The message here is one of commoditization – do we want Marketing and Communications to be defined solely by cost? Let’s remember how well a laser-like focus on optimizing the cost basis ultimately worked out for companies like Dell. It didn’t, and that’s why Dell is now private and engaged in the largest IT roll-up in history.
It’s important to know what Marketing and Communications should cost, given your business challenges and objectives. Both functions should be as tightly run as any business unit. But in the rush to cost-optimize, we have walked away from the fact that Marketing and Communications are about Impact, Growth and Business Value.
If you are a marketer or a communicator trapped in the spiral of cost optimization, take a moment to remember that you are all about creating Upside. And there’s nothing of greater Business Value than that.