Marketing spending – an investment or simply a cost?
The term ROMI, Return on Marketing Investments, is becoming popular. Perhaps the popularity is driven by the need to position marketing from being a cost centre to becoming a strategic driver of business value?
However, the term ”marketing investments” is challenging. We all understand the meaning of it and it makes perfect sense in natural language. After all, our civilization has understood the concept of investments since the Code of Hammurabi, dated 1700 BC, where is was documented for the first time.
The concept is very simple, for every dollar, euro or RMB we spend on marketing, we should get more than that back as increased sales revenue. The more we get back, the better the investment. But from an accounting or financial perspective it is not as simple. Since the money spent on marketing doesn’t end up in the balance sheet as an asset, it is not a formal investment. It is not like investing in a building or machinery. So from a strict accounting perspective marketing spending is not an investment, only a cost of doing business. In this context the term ROMI doesn’t make any sense, it is just not correct.
On the other hand one could claim that the result of marketing actually does end up in the balance sheet, under goodwill or intangible assets. Brand and reputation has a monetary value. We clearly see this in acquisitions for example. From this perspective, at least the part of marketing spending that is focused on branding, could be seen as an investment even from an accounting perspective. There is even a standard on how to value brands, ISO 10668. Although this standard only defines the actual value of the brand, not how to define the marketing activities that builds it, it provides you with a formal platform.
Words and details are important. But regardless if you are calling your marketing spending an investment or a cost, it is more important than ever to keep track on how you spend it. To compare the budgets to the actuals and to keep track of the business outcome. The fierce competition and the constantly increasing speed of doing business makes continuous changes the new normal. And to manage these changes and to adjust and optimize your marketing activities you need to follow up both the cost and the result sides of your marketing activities. The formalities on whether marketing is a cost or an investment is interesting – but it is critical to keep costs under control and to focus on the business outcome.