The secret is out -- marketing is the new finance. This simple fact is dramatically changing decades-old approaches to marketing. The biggest single change is the rigorous application of quantitative and statistical techniques to improve return on investment. Exciting huh? Ok don't fall asleep just yet, you need to know what this means to your job. Even if this topic is kind of dry, bear with me because in this post you will learn how to make a 6 figure bonus. Don't believe me? Stop reading at your own loss.
Let's start with this idea of marketing as the new finance. What does it mean to you? It depends on what you do:
- Marketers
You can no longer simply hope that marketing campaigns work. You must learn how to make data driven decisions.
- Executives and Owners
You need to align organizational resources now. Forrester Research says, "companies that use web analytics will gain competitive advantage."
- Everyone else
Jobs. Unemployment and debt levels remain dismally high and will ensure the economy remains dreary for some time to come. But even in this climate, there will be new opportunities. Many of the new businesses that break out of this slump will do so through the clever application of online marketing.
Why will this happen? Because demand creates supply. Increasing demand for your company's goods and services creates new jobs. Those new jobs can lower unemployment (but don't always).
Until recently, demand was more or less limited by geographic boundaries. Now anyone with an ad budget of even a few hundred dollars per month can reach a nationwide or even global audience. By profitably and efficiently connecting buyers and sellers, online marketing stimulates economic growth.
Marketing Is The New Finance - But What Does That Really Mean?!
Now that you have an idea of how online marketing will affect your life, let's drill down into "marketing as the new finance" and unravel what that really means. First and foremost, we need to understand what finance is. In broad terms, finance is the "the science of funds management."
Science is dependent on data and math. Nerdy, right? Sure! A lot of people find the products of science a wonderful and necessary part of life. The knowledge of science, on the other hand, usually induces yawning and boredom. In other words, we love our smart phones, cars, and medicine but we hate to do all the work required to actually understand exactly how these marvels work. Of course that's unfortunate outcome of our culture and education, but that's a topic for another day.
So is marketing really the new finance? Don't take my word for it. Here's Google's Chief Economist explaining it in just 40 seconds.
Abundant, Real-Time Data with Direct ROI
The first thing that any "science of funds management" needs is abundant, real-time data that's directly connected to return on investment. With online marketing, we have exactly that.
Web Traffic as a Portfolio
A portfolio is a "grouping of assets". Finance is the "science of funds management". A third definition will be useful, but hasn't been created yet. I propose that "financial marketing" is an emerging discipline that maximizes return on ads and traffic through the rigorous use of statistical modeling and data driven decision making.
Financial marketing already exists in surprisingly sophisticated forms. eFrontier, for example, applies modern portfolio theory to online ad management. With a billion dollars of assets under management (aggregate annual ad budget), eFrontier makes $50M annual revenues through automated financial marketing.
Wait, let's go back a step. What the heck is modern portfolio theory? Put simply, modern portfolio theory is the idea that you can both:
- Reduce portfolio risk (and risk is really just cost)
- ...and increase returns
Sweet, right? In practical terms, this means that if you manage your money with portfolio theory you will retire sooner and live better. It's basically a statistical approach to the efficient allocation of funds. Wait, that sounds a lot like finance -- or "the science of funds management"!
So how does this all tie in to online marketing? We'll dive into that in just a moment, but first let's set up a real-life scenario to make all of this less theoretical and more like... oh I dunno... more like, "I've always wanted a nice house in the hills, and now I actually have a plan to get it!". Read on to learn how to get a 6 figure bonus.
The Scenario
You were just hired as the CMO for a company that sells snowboards online. Your bonuses are tied to profits. Let's put some real numbers to this...
- Last year, you sold $2M of snowboard equipment from November through January (your busiest months).
- Of that $2M total snowboard revenue, ads brought in $1.2M of business.
- Your current ROI on ads is 300%. Not bad, but not great. This means that for your $1.2M sales, you spend $300K on ads.
- Cost of goods sold was $700K, leaving just $200K for profit :-(
Now let's say your company is especially generous, and pays out 50% of profits as a bonus if you obliterate sales goals. You get 1/4 of the total payout, since you're the CMO. You still with me? Lots of numbers, I know, but it's all to get that house in the hills and you're about to learn how.
As a smart CMO, you're going to apply "financial marketing" to grow your company and increase your bonus. While financial marketing has dozens of strategies, an always-effective approach is the efficient frontier.
In this example, let's say your company only sells high end snowboards. The "burton custom snowboard" keyword is costing you $2.15 per click, higher than most of your ads, but you know it brings in prospects that have real money to spend. As a result, the ROI on that keyword (Y Axis), is very high. Nice!
What about your other keywords? Let's say that although you don't sell cheap snowboards, cheap snowboard boots are your loss leader. People come for the cheap boots, but by the time they get through checkout they usually add more profitable items to their cart.
Now, you map out all your keywords on an efficient frontier. You instantly see that "cheap snowboards", even at the low cost of $0.79/click, is a real dog in terms of return on investment. Cheap snowboard boots, even though it's slightly higher cost at $0.84/click, has a much higher ROI. You don't have cheap snowboards, but you do have cheap boots, and those cheap boots usually walk out of your store with attachments (aka additional items per order).
So what do you do? As a smart CMO, you re-allocate your ad spend by shifting budget from "cheap snowboards" to "cheap snowboard boots". This is exactly like portfolio rebalancing in the financial world.
Great - you just helped your company grow a little by increasing ROI. Feels good, doesn't it? So why stop there! You build Facebook, Bing, and banner ad campaigns into your efficient frontier diagram. Finally, you reallocate all your budget in the most efficient manner possible. Here are the results (and how you get that house in the hills).
- Overall ROI increases from 300% to 500%.
- You show your CEO what you've done. He's so impressed, he doubles your ad budget.
- You grow your ad budget from $300K to $600K
- On that $600K, you make $3.6M in sales.
- Your profit margins stay the same. COGS on $3.6M sales is $2.1M.
- Profit is now $900K. You went from $200K profit to $900K profit. That's some seriously sick risk free operating leverage.
- Your bonus payout on $1.5M is $101,250. Not bad for 3 months of work!
That house on the hills is getting closer every day. Thanks financial marketing - you're really swell! :-D
So to recap:
- Marketing is the new finance
- "Financial marketing" is an emerging field and needs to be recognized
- Financial marketing is built on the tried and true techniques used in finance, aka "the science of funds management"
- Ad campaigns can be managed using modern portfolio theory
- Each keyword in your portfolio is an asset that can generate income or loss, exactly like a stock or bond in your financial portfolio
You Need to be Creative and Scientific
Great profits never come easily. In the New World of Financial Marketing, even the brightest marketers and CMOs will need to constantly hone their skill set. Even if you know everything there is to know, you still have to keep up with emerging technologies because Financial Marketing is a hot, new discipline that's rapidly evolving. Let's have Chris Maloney, CMO of Scottrade, take it away.
Enjoyed the blog. Makes you wonder why more businesses are not pushing the internet marketing button more often: reach more prospects, get to know them, sell them products/services and keep them...and you know what what your ROI was.
Where were you 30 years ago when we were trying to sell more french fries economically?
john
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