THE basic formula for all business

Let’s now quickly summarize the goals of most management teams using our basic formula for businesses:

Profits  =  Revenue  –  Costs

Goal #1 – Maximize Profits – often stated as a goal, this is really just the equation result of increasing revenue or reducing costs.  But given that perception is reality, we can interpret it as a goal in relation to marketing in order not to confuse the convention in some businesses.

•       This is what marketing does in reality – we just need to communicate it correctly so it’s understood.

•       This is marketing’s great mission – whether its to increase recognition or to raise brand awareness and brand value – it all translates to maximizing profits.

Goal #2 – Maximize Revenue.  There are two main ways to maximize revenue:

A.     Maintain and/or Grow Earnings

•       This is often considered “table-stakes” for most senior managers, meaning this is expected as part of the job.  If you’re not growing, you’re contracting.  Most companies must grow, grow, grow.

•       However, this is a very difficult task as its ease in achieving is inversely related to company revenue sixe.  So as you get bigger, it’s more and more difficult to maintain growth.  When you’re still a small company it’s not a particularly difficult task to double sales in many cases!

B.     Maximize Market Share

•       Marketing is a main enabler of this goal as many mature businesses exist in a zero sum market share environment.  The only way to increase your company’s market share is at the expense of a competitor’s share.  The “pie” is only so big for a saturated market and growing the pie is exceedingly difficult without disruptive or highly innovative new product or service introductions.  Often, market share is taken from a competitor either through aggressive sales efforts or great branding campaigns that change the consumer or customer behavior.

Goal #3 – Minimize/control or reduce costs

•       Guess what, you’re a cost in most senior managers minds – just like toilet paper, copiers and electric bills!

•       Thus, marketing is an easy target for reductions due to lack of a basic understanding of how this critical function drives real value in the core businesses.  We will prove the direct connection between marketing and profit (via revenue).

•       We must change this focus from costs to profit (revenue) drivers via Return On Investment and Return on Objectives.