How Your Profit and Loss Report Should Correlate to Your Marketing
Profit and loss seem to be relatively cut and dry concepts. Electric bills and rent payments are losses. Payments for services rendered are gross profits.
While you may not be able to make money from your electric bill expenses, your company can make money by spending it on developing the right strategic marketing plan. If that’s not the case, then you have problems.
Marketing Should Be a Profitable Expenditure (or you’re doing it wrong)
Marketing can be thought of in terms of expenditure. Additionally, it can be thought of as an investment versus an expense.
Take Sarah’s Sample Company for example. Sarah’s fictional company’s 2014 gross annual revenue was $23.6 million.
In our example model, Sarah’s Sample Company spends a little more than 8 percent of that gross revenue, which translates to $1.9 million, on marketing.
Assuming that Sarah’s company made that investment, it should have then made more $1.9 million in profit from marketing by the end of the fiscal year. Here’s a simple profit and loss report that demonstrates Sarah’s increased profit.
of Income Data:
|Revenues||$ 21,795,550||$ 23,650,563|
|Costs and expenses:|
|Cost of revenues||8,621,506||8,844,115|
|Research and development||2,793,192||2,843,027|
|Sales and marketing||1,946,244||1,983,941|
|General and administrative||1,802,639||1,667,294|
| Contribution to Google
|Total costs and expenses||15,163,581||15,338,377|
|Income from operations||6,631,969||8,312,186|
|Impairment of equity investments||(1,094,757)||–|
|Interest income and other, net||316,384||69,003|
|Income before income taxes||5,853,596||8,381,189|
|Provision for income taxes||1,626,738||1,860,741|
|Net income||$ 4,226,858||$ 6,520,448|
Yes, it’s Hard to Measure
Measuring the profitability of your company’s marketing is difficult. It will bring you varying numbers of customers each quarter, and putting a set dollar value on generating qualified leads is close to impossible.
And no, getting a positive ROI (return on investment) in the early stages of your marketing probably isn’t going to happen.
But think about this – doesn’t closing a lead into a customer normally take time? And as that customer stays with your company, don’t they spend more and more money over time?
That’s the point of marketing. Investing in it brings in leads that are more likely to buy your products or services than traditional advertising will. Over the lifetime of a client, your company will see larger and larger numbers in profit.
Constantly Evaluate Your Results
Good marketers should evaluate the results of every dollar spent. On the flip side, successful business owners should be on the same page with their employees. So, ask your sales team these two questions after every step your marketing team takes.
1.) Is selling our products and services easier because our marketing is sending you more qualified customers?
2.) Are you spending your time more efficiently now that you’re talking to more people seriously interested in buying our company’s products and services?
Once your sales team starts to give you positive answers to those questions, you will begin to see positive results in your sales numbers.