Explanation of the current business number
When the company, of which I was a director, came into the hands of an investment firm, their first question was “Why is the sales volume only xxx?”
A question that I could not find an answer to at the time. We have not made a proper diagnosis of our circulation. We knew the size of the market (it was clearly defined) but we didn’t know how much trading volume we could get from it. The question was answered within a few weeks and immediately converted into activities. Within a year, the company was sold for twice the value at which it was bought.
We’ve researched and found the answers in our marketing strategy and activities. We have been very focused on selling our existing products to existing and similar customers. But we have neglected the needs of our clients’ clients. And especially how we can respond to this with a new product. After its introduction, the trading volume increased sharply. Together with my Director of Marketing and CFO, we learned an important lesson here: Marketing has a direct impact on business results and their evaluation. Since then, finance has been closely involved in all marketing expenses, increasing the value of the company.
In order to explain the current turnover, a clear diagnosis of marketing strategy and tactics must be made. So learn from the decisions made, so that new decisions can be made better. In this learning process, it is important to have a culture in which scapegoats are no longer sought; If the result had been known in advance, it would have been possible to purchase a winning state lottery ticket long ago.
The above question (“Why is the sales volume only xxx?”) is the right start to a marketing diagnosis. Many marketing plans work to recalibrate the marketing strategy because the current plan seems to give or will not produce sufficient results. Good reason, but the question “Why is our turnover only xxx?” is rarely answered.
The problem with these marketing plans is that they are often one-time. It is prepared on behalf of or because of a study in which ad hoc analyzes are performed while the organization is an ever-changing organism. This does not mean that the special analysis is wrong, but comparing it with a one-time “check” only at the doctor. Today nothing can be found, but this does not guarantee that nothing will happen in the near future.
In order to make a proper diagnosis, it is important to identify critical success factors (KPI, KPIs) that are available periodically (daily/weekly/monthly) and are discussed with all stakeholders.
KPIs should be clear and directly relevant to day to day business. If sales growth is the goal, then two KPIs are sufficient: additional turnover from existing customers and additional turnover from new customers. Do this weekly and you will soon have an idea of whether you will meet, exceed, or not reach the goal. Many organizations do this.
Why is the turnover rate increasing?
The most important thing is that you can explain the KPI of the past period, regardless of the result. Why was the trading volume last week xx? Evaluate all marketing activities and try to find out why customers have or have not purchased in the past period. Work closely with other departments such as sales. Has the volume of business increased sharply due to the granting of discounts? Then, in conjunction with the finance department, check whether this turnover with deductions still generates enough margin and/or causes them to break up. If you reach many new customers with your promotional campaign, then it makes sense to intensify it in the coming period. Be honest so that the right actions can be taken to achieve the goals.
In a larger organization, it is advisable to work with different KPIs for each level. These must of course be related to each other. If revenue growth is one of the KPIs for senior management, then marketing will have KPIs in terms of new customers, increased usage by existing customers, and volume sharing. Next, the marketing communication contains, among other things, the KPI on awareness and behavior. Here, too, periodic diagnostics should be carried out with the statement of key performance indicators. Only then are you “in control” of the marketing process.
The essence of marketing is to forecast future sales as accurately as possible. It is necessary to know the market and the individual’s position in it. In which market(s) is the organization active and what are its characteristics: upward, stable or downward trend? Anticipation is essential which is why it is also important for marketers to talk to the many parties in the market and do research. Therefore, marketing is actually a controllable process or system.
Investors, as well as banks, look at three things in a company:
- attractiveness of the market(s) in which the company is active;
- the relative competitive position of the company;
- Strategy and leadership within the company as measured by results in recent years.
Companies that achieve their pre-prepared budgets year after year are in no way in control of their (marketing) operations. Shareholders can adjust their desired return on this, as the return is expected to be lower with low risk and higher return with high risk.
The task of marketing is to determine whether the company’s performance (in terms of the combination of sales achieved and/or revenue, depending on the market) is in line with the market or not. If a company performs poorly in the market, it becomes prey to takeover or may eventually have to leave the market itself. It is not always on the demand side, a number of companies (such as solar panel installers) can achieve much higher turnover but are falling due to not having enough solar panels and/or the right personnel to install them.
The marketing function of the firm is tested in marketing due diligence, in which it is examined to what extent marketing reaches and will contribute to stable future income. The book review Marketing Is Not a Black Hole provides a good overview of what due marketing diligence entails; I want to highlight one aspect here: pricing power.
It is known that price adjustment has the greatest impact on the profitability of the firm. To be able to adjust prices, preferably higher, the marketer must first know exactly what the product’s perceived value is (see “The price was right, wasn’t it”) or in a B2B market knowing exactly what the benefit of the product would be. With current energy prices rising, you can safely charge more to install solar panels. However, competition limits the extent to which you can raise prices. It is up to the marketer to build a brand with different advantages with a sustainable competitive advantage that justifies the higher price thus achieving a constantly higher income stream.
Make an appointment with your financial colleague and tell them that you want to compare recent period turnover with the marketing actions you’ve taken. The goal is to be able to explain the cause and effect relationship. In a B2B company, where sales play an important role: invite them to this meeting as soon as you have made the first analyzes (and you may already have explanations).
The next step you take with your financial colleague is to have your next marketing campaign together based on the diagnosis you made earlier. It intensifies this cooperation through periodic consultations in which it evaluates and develops plans.
This is the foundation of your marketing process and system that allows you to better predict tomorrow’s revenue. You can read why this is important in Part 2, which will be published on Monday, October 24, 2022.