Why Marketers Should Possess P&L Management Skills
Chief Marketing Officers (CMOs) and their subordinates have a responsibility to measure the projected income and expenses of their marketing campaigns before executing them. They need to fully understand the financial impact a promotional activity is going to make so they are able to report tangible return on income (ROI). This article will discuss why profit and loss (P&L) responsibility is key to achieving marketing success, and how marketers can leverage it.
What does P&L mean?
Profit and loss (P&L) analysis is the heart of any business. P&L management refers to the act of summarizing the total revenue earned and costs incurred at any given period. The costs recorded in a P&L or income statement are those that have been spent by the company with the intent of earning revenue.
A profit and loss statement tells whether the company is spending too much in one area of the business, and if certain programs are no longer adding value to the organization. In marketing, having P&L management skills allows the person-in-charge to come up with revenue-generating strategies that won’t eat into too much of the intended budget.
What is P&L responsibility?
When executives are given P&L responsibility, it simply means that their day-to-day work involves keen monitoring of net income once expenses are made for certain programs. For example, when CMOs are granted a $5,000-budget to run a week-long social media campaign, they have a P&L responsibility to cut expenditure while generating a positive ROI.
P&L responsibility for marketers
Marketing departments are drilled to deliver profitable results. At the start of the year, marketing is given a considerable budget to run projects that will attract more customers and ramp up repeat purchases.
The question comes down to the size of the budget that company executives are willing to allocate so that marketers have enough money to spend on advertising, digital marketing and public relations for attracting new customers, boosting sales or building brand credibility.
The P&L marketing responsibility for CMOs entails that the annual budget allocated for marketing delivers strategic and well-executed campaigns that hit their target profit and make a significant bottom line contribution, all while minimizing expenses. If the programs initiated by marketing departments are delivering more than what has been initially forecasted, there’s a huge chance that a bigger piece of the budget will be allocated towards them in the next financial year.
In 2017, Gartner released a report titled, Gartner CMO Spend Survey 2016-2017, which revealed that 75% of CMOs own or share P&L responsibility. These marketing leaders were found to have 20% higher budgets than those without P&L ownership. In addition, CMOs with P&L responsibility say that their marketing budget was 12% of revenue, while those without P&L responsibility only had 10%.
According to the report: “This P&L responsibility becomes a virtuous cycle: Marketing leaders who demonstrate accountability through stewardship of the P&L earn the trust of senior management and command larger budgets.”
Profit and loss responsibility doesn’t rest solely on the shoulders of the top marketing executives. In fact, young marketers are encouraged to have some level of P&L experience and expertise as well. Having analytical skills to match marketing budgets with revenue-generating programs will go a long way in improving the company’s bank accounts, and hopefully getting more budget for the next financial year.
How can marketers gain P&L management skills?
It takes experience and a high level of learning for marketing executives to assume a P&L responsibility. However, some organizations have a strong preference for mid-level marketers who are proven to drive as much incremental revenue as possible.
Here are some ways marketers can assume P&L responsibility:
1. Have a strong command of all marketing programs
Marketers who want to assume P&L responsibility need to have complete ownership of the department’s wins and losses. This means that they should be able to take responsibility for every marketing program that runs, and closely monitor the income and expenses associated with every campaign. They are expected to understand how each marketing channel works, where and how to reach new customers, and how much profit can be collected from a given project.
2. Be able to inspire the team
P&L responsibility goes beyond tracking profitability and managing expenses. It also involves motivating the team to execute their best efforts to achieve a greater outcome. Remember that each successful campaign is run by a team with different specializations. Each person has a role to play, whether it’s developing content to attract customers, managing customer inquiries, or closing leads. Great teams make for sustainable business outcomes, so the marketer needs to involve each of his or her team members in every aspect of the plan.
3. Be resourceful
Since P&L in marketing also involves mitigating expenses, marketers are challenged to use company resources as much as possible. C-level executives test how far marketing departments can squeeze their creative juices to come up with revenue-generating and value-adding campaigns. That said, every marketing professional must explore ways to maximize their available resources or run their programs at little to no cost.
4. Stay up-to-date on the latest trends
Traditional income streams in marketing may no longer be the best idea in today’s landscape where so many high-paying customers are active on digital platforms. When marketers fail to keep up with the changing times, they can burn their budget on programs that offer no value to the company. This would be detrimental in the eyes of key decision-makers. Marketing professionals need to stay abreast of the latest best practices so they can put their budget towards efforts that are proven to drive revenue.
5. Know the company’s strengths and weaknesses
Admittedly, not all products or services are easy to promote. Marketers need to be conscious about what they’re marketing, and how much money they are willing to spend to get a higher return. They also need to consider the demographic that a product or service appeals to as this will have a direct effect on the marketing strategies they implement. It’s likely that products and services that appeal more to an older audience are better advertised through traditional platforms like TV or radio, while those that appeal to younger audiences will do better with online promotion.
It boils down to understanding the strengths and weaknesses of the company’s products and services, which can be best understood when running a P&L analysis.
P&L management will go a long way in managing budgets well
Having a P&L experience is beneficial to companies who want to achieve higher ROIs. Chief marketing officers should start training their subordinates to learn profit and loss management so they are able to provide value-adding insights for future campaigns and ultimately contribute to the company’s bottom line.