Make the Shift from Cost-Center to Value-Center.
By Laura Patterson is president and co-founder of VisionEdge Marketing, Inc.
Thursday, 14th April 2016

Many organizations consider marketing a cost center, really? The basic definition of a cost center is any part of an organization that adds to the cost of running a company and is not directly responsible for revenue or investment decisions. 

Wow!  Customers create revenue and marketing’s job is to find, keep, and grow the value of customers, so clearly Marketing is an essential part of the revenue equation.  How did marketing end up being lumped into the cost-center category and how should we think about marketing in today’s environment? And does it matter?

Let’s answer the last question, first, yes it matters!  Because cost centers are viewed as detrimental to the bottom line. As a result, there is always pressure on the cost center to maximize efficiencies and reduce costs " facing the relentless challenge of doing more with less. When marketing is treated as a cost center  the marketing leadership is constantly in the budget hot seat, focused on keeping their costs in line or below budget. 

And when sales are down, they are expected to cut marketing further. Just the opposite of what needs to happen. Does that sound familiar?  Of course marketing should stay within budget, but that really shouldn’t be its primary focus.  Creating customers, the very essence of business should be our focus. Which leads us to the back half of the first question.  How should we think about marketing in today’s environment? Perhaps the best way is to recast marketing as a Value-Center.

What It Means For Marketing To Be A Value-Center?

Ok, you say, that sounds good but what’s that mean?  A value-center demonstrates value for the money it receives. That value needs to be measured in terms of value to the business.  To be perceived as a value center, an organization needs metrics that connect the function to what matters to the business.

When you use metrics related to activities (e vents produced on time and within budget) and outputs (response rate and qualified leads), marketing remains a cost. To transition to a value center, your metrics MUST link marketing to bottom-line revenue, such as revenue generated from new customers for new or existing products and/or revenue generated from existing customers for current or new products. 

Bottom line revenue improves with every percentage increase in market share, category ownership, and customer lifetime value. When you connect marketing to these outcomes, it becomes a value creator worthy of continued investment.  Of course, you still need to show the cost side as well, but by showing the value generated, you change the perception of marketing from cost to investment.

Perception is good but proof is better. And that’s why you need the right kind of marketing dashboard.  Your marketing dashboard should show the impact of your marketing to the business over time and how well you are achieving investment performance targets. With the right marketing dashboard you are not managing a Marketing department " you’re managing business performance.

When the leadership team begins to use the Marketing dashboard to make strategic decisions that will shape the direction of the business, Marketing has evolved from cost-center to value-center. Imagine that!

Laura Patterson is president and co-founder of VisionEdge Marketing, Inc., a recognized leader in enabling organizations to leverage data and analytics to facilitate marketing accountability. Laura’s newest book, Marketing Metrics in Action: Creating a Performance-Driven Marketing Organization (Racom: www.racombooks.com ), is a useful primer for improving marketing measurement and performance. Visit: www.visionedgemarketing.com       

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