How to Get More Employee Turnover (Part Two)

Marketing is about converting sales and making good profits. Now perhaps more than ever. And yes, there are still a lot of things that matter in the marketing profession, but in the exchange of value, a supplier of that value should be able to earn a living. To live, the ability to invest and the ability to do business.

That is why I wrote diptych. The first part appeared here last week and was devoted to the question of how to forecast tomorrow’s turnover. This second part is about the impact of future sales on the value of the company.

Marketing is about the sales of tomorrow

A marketer spends most of his time generating tomorrow’s revenue. You can do this through the marketing process or the system. A constant mix of activities that you evaluate together with Finance for effectiveness and, above all, predictability: do we get the invested euro back and what we can expect in terms of turnover this year and the years to come. You can read more about this in Part 1.

profit or result

In the end, the goal of all marketing efforts is to get more money than to go out. Or, in the case of a nonprofit organization, that there is enough money left over to fulfill the purpose of the organization. For convenience, I have here below about the profit, so the result or contribution can also be read there

Determining profit is a profession in itself, so I will discuss the main line here and give a number of examples. The main line is very simple: Turnover -/- Costs = Profit. Now business volume and costs can be distributed in the accounting system. For example, the annual subscription is divided evenly by the publisher over the 12 months in which the subscription runs. After all, the magazine’s publishing costs are monthly, too. Income and sales are out of sync here, I’ll come back to this under Profit and Cash.

You see something similar under Costs. The moment you make the investment in computers, you have to pay directly with the supplier. However, since you expect to use this laptop for five years, you can “write off” the amount in five years.

profit and cash

Criticism is king. Firms go bankrupt only if there is a shortage of cash, for example to pay wages. As long as shareholders make additional contributions and/or add new contributions, the company can incur long-term losses. In calculating the simplified results below, you see that sales volume is ultimately reduced to EBITDA (Earnings Before Interest Tax Amortization / EBITDA). This score is often used because it gives a good reflection of the company’s performance over a year.

Income statement * 1,000 EUR 2022
he won 5000
Purchase value turnover 3200
gross profit margin 1800
staff 1,000
Marketing budget 100
indirect costs 600
salvation 25
flowing cash 75

The cash flow is €25,000 less than Ebitda’s profit because the company has an obligation to repay a debt entered into earlier. With positive cash flow, investments can be made in the company or savings can be made. The financial manager makes cash flow forecasts regularly. Then he gives an overview of the following:

Cash Flow Forecast * 1,000 Euro 2021 2022 2023 2024 2025
he won 5000 5,500 6000 6.500 7000
Purchase value turnover 3200 3.465 3.720 3.965 4200
gross profit margin 1800 2.035 2.280 2.535 2800
staff 1,000 1.050 1.103 1.158 1,216
Marketing budget 100 200 150 150 200
indirect costs 600 630 662 695 729
EBITDA 100 155 366 533 655
salvation 25 25 25 25 25
Investments 150
flowing cash 75 130 191 508 630

This gives management and owners a picture of the expected cash flow in the coming years. The CFO made his own estimate of turnover and projected costs. To give the cash flow forecast a more optimistic picture, the CFO estimated marketing costs at €150,000, which is the average for 2021 and 2022 (!). If you’re not a part of this meeting as a marketing manager, increasing your marketing budget is going to be a rather difficult discussion.

Suppose the marketing manager has now prepared the forecast with the finance manager. They have regular consultations to determine the effectiveness of marketing campaigns and in 2022 a 10% revenue growth will be achieved with a double marketing budget. It has been proven that this revenue growth comes from various marketing campaigns. The CFO now supports the growth of the marketing budget, after all, this investment is paying for itself. The cash flow forecast looks different now because both the marketing manager and the finance manager are confident that higher marketing spend also means higher revenue. In addition, the CFO is proposing a larger investment in 2023. Even if this comes at the expense of cash flow for that year.

Marketing and Finance Cash Flow Forecast * 1,000 Euro 2021 2022 2023 2024 2025
he won 5000 5,500 6.600 7920 9.504
Purchase value turnover 3200 3.465 4.092 4.831 5.702
gross profit margin 1800 2.035 2.508 3.089 3,802
staff 1,000 1.050 1.103 1.158 1,216
Marketing budget 100 200 400 500 550
indirect costs 600 630 662 695 729
EBITDA 100 155 344 737 1,307
salvation 25 25 25 35 35
Investments 200
flowing cash 75 130 119 702 1.272

business evaluation

Now that the cash flow forecast has been made, the value of the company can also be determined. In practice, especially in MBK, a general rule is often used to determine the value of a company. This relates to formulas such as:

  • 5-7x net profit
  • 0.75 – 1.5 times the annual sales volume
  • 3x Ebitda
  • 4x in Ebit

Whichever way you go, you often look at the previous or current year. This is why the DCF (Discounted Cash Flow – Net Present Value) method is so popular because a) it forces you to look into the future – cash flows – and b) the concept of the business is based on having money left.

Using the discounted cash flow method, an interest rate must be chosen at which future receipts must be discounted; In short, what is the euro worth in three years? This interest rate is called WACC (weighted average cost of capital). WACC is the average return on equity and cost of debt. Marketing affects this; After all, the better marketing can predict future turnover (and thus also cash flow), the lower the risks associated with the company for shareholders and banks.

In the above example, DCF is calculated using 20% ​​and 10% weighted average equity:

Marketing and Finance Cash Flow Forecast * 1,000 Euro 2021 2022 2023 2024 2025
flowing cash 75 130 119 702 1.272
Value is based on DCF (20% WACC) 1,285 108 83 406 613
Value is based on DCF (WACC 10%) 1,687 118 98 527 869

The value associated with WACC of 10% is when Marketing and Finance establishes “Tomorrow’s Turnover”. After all, it is clear to both the banks and the shareholders that this company is “in control” and therefore satisfied with a lower return. As a result, the company’s value increased by approximately 25%. Shareholders will shout “I love marketing!”.


Of course, the numbers above are stylized and I did not take into account the amounts invested. However, I know from experience how powerful shareholders are in setting revenue-backed forecasts and generating additional revenue. Or, if you have a well-managed marketing program and you can tell your customers: “We know your customers of tomorrow.”

I hope this will encourage marketers to consult with their financial colleagues more often. And if you can’t figure it out the first or tenth time – keep trying!

Leave a Comment