Dear Tig,

The company I work for currently measures the productivity of the marketing department by using department expenses as a percentage of company revenue. Is there a more precise way to measure performance? Thanks,

A Denominator

Dear Denominator,

That method of valuing the marketing department's work isn't half as bad as most others. The trick, though, is to make sure the correct revenues get matched up with the right expenses. It's an issue of time shifting not unlike that of “revenue recognition” policies publicly traded companies face when trying to match up expenses and revenues.

Most marketing efforts take quite some time to recoup costs. If you do the same think week in and week out, at the same levels of intensity, then your company's measurements would properly reflect performance, but this is never true.

Worse, it incents the marketing department to never invest in efforts it knows will pay dividends in the future. The method's influence, instead, puts a pressure on costs at the expense of profitable future revenues.

This can be corrected with a delayed recognition policy. You break up the marketing efforts into discrete campaigns and make an educated guess as to how long they will have an effect and when corresponding revenues (and in what amounts) will come in. These are expressed as percentages of revenue, rather than absolute amounts. Any overhead expenses the department has should be spread evenly over time.

So, for example, let's pretend your department spends £100,000 per month, with £40,000 in overhead. The remaining is even spread among three different £20,000 projects with different cost recoupment time periods.

One, a direct marketing campaign will gain most of its revenue quickly, perhaps in a couple months, with a small residual brand effect. The branding campaign will happen over a three-year period. The third might be a general advertising campaign that you run consistently that you believe accounts for about 25 percent of your revenues.

Your immediate marketing performance is then generated off of your current revenues divided by the collective moneys expended in various past periods and attributed to this moment's revenues. Your current expenses will count against those future revenues. This environment creates the correct incentives for prudent investment. It must be watched carefully, however, because—as we've seen in the financial sphere—it is very easy to abuse these assumptions, making performance look quite good at the expense of a future reckoning. The good news is that we have measurement tools that allow us to determine if our revenue-time assumptions are correct or need adjustment. This is a matter on which I've spent a great deal of time doing independent consulting, and it takes some initially-difficult quantitative analysis to set up accurately.

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Hi Tig,

I am looking for good a definition for marketing versus merchandizing. I consult in merchandizing, and clients often get confused.

Can you help?

Thanks,

Teresa

Dear Teresa,

Merchandizing is marketing done at the site of product sale.

It usually involves doing something with the product itself, thus the etymology: “merchandise”-ing. It comes from a long tradition of marketing-inspired word creations that take nouns and make verbs out of them. This might be to fight back the academic trend of the nominalization of verbs. Thus: “merchandization.”

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Dear Tig,

What is a clear, simple definition of “business development?” Also, if in an interview, should I mention my current salary when asked? And finally, should I mention my expected offer, or should I leave them to submit their offer first?

Inquirer

Dear Inquirer,

Today, business development means sales. It used to be that there was a difference between the two. Business development involved pioneering into new categories of revenue, perhaps involving product development or mergers. Nowadays, people use the term business development when they want to sound more important than they are, or win meetings with prospects without making them aware they're in for a sales pitch.

You should pre-empt the question of salary by asking first what sort of range they offer, but you must do this in as off-hand a manner as possible and when it seems like natural course of conversation rather than make yourself appear as a monomaniacal grub. If it seems low, this is the time to tell them your salary.

If they ask first, you should tell them. Do tell them what you expect as a range in the future, and if it's terribly different from your current salary, tell them why.