Why does a marketing agency perform financial audits?

A part of our Research, Audit, and Strategy phase that we offer all of our clients is a full Financial audit. You may think the seems outside the realm of a marketing agency, but everything we’re doing is with your endgame in mind. This means to make you more pre-tax profit and increase your bottom line, and how will we ever know if we’re getting there if we haven’t reviewed financials with you?

Financials are important to the marketing strategy in a couple of different ways:

1. Does your budget allow for an outsourced marketing team?

The Small Business Association states that businesses making less than a million dollars a year should be spending about 10% of their revenue on marketing. Your marketing budget will be one of the first things our sales representatives will discuss with you because if you haven’t made room in the budget for marketing, or don’t have enough to really makes an impact, we won’t be able to do our best work and show you results.

2. Is your business in a sound financial place to grow with the marketing campaigns?

Another thing to consider is that if we do our job, ideally your company will scale up! We intend to bring you as much business as possible to meet the goals that you’ve brought to us, but if you are not in a financial position to grow your business i.e. potentially hiring more employees, increasing expenses as needed to fulfill all your new clients, etc., then what’s the point in putting forth a full marketing strategy?

3. We have a few different marketing key performance indicators (KPIs) that we look at that tie directly into your finances. Some of those KPIs eyes that we looked at are:

• LCV: Lifetime Customer Value
• COA: Cost of Acquisition
• ROMS: Return on Marketing Spend
• ROAS: Return on Ad Spend

Lifetime Customer Value

Lifetime Customer Value is a really good indicator of long-term marketing efforts and how much you’re getting paid on the back end. For example, if we start at the beginning with say a $50 Facebook ad spend and then look at the long-term results of that ad, we can determine LCV and whether or not it was worth it to spend that $50.

If 100 people saw the ad and we know the following information:

– 10% of people that see that ad (10 people) will click on it and fill out a form
– 10% of the people that signed up will close (2 people)
– We have a 90% client retention rate (1.8 people)
– 50% of closes (1 person) turn into contracts that last up to 2 years
– The average LTV of a two-year client that came from an ad is $20,000

Then we can deduce that it was well worth it to spend the $50 on the Facebook ad since by historical evidence, the LTV of a client coming from an ad will make us $20,000 over time.

Cost of Acquisition

Cost of acquisition can be factored multiple ways. You can look at a specific campaign, or you can look at the big picture of all marketing and advertising costs over time, such as time spent, collateral (hard costs), ad spend, etc. We are ultimately looking for all of the costs associated with acquiring a new client. Here are some questions you might ask:

– How much are you spending on advertising?
– How much time (hours) are you spending and what’s that worth to close the deal?
– How much are you spending on outsourced marketing?
– What are you spending on sales and marketing team salaries?

Once you’ve asked these questions, you can complete this formula and come up with your COA:

What is your total cost of sales and marketing, divided by the number of customers acquired?

Knowing your COA and LTV can help you with long-term planning and budgeting. If you know how much it costs to acquire clients, and what that client is worth, you can calculate the number of cash reserves you need to keep in order to continue your marketing efforts.

Return on Marketing Spend

Return on marketing spend is calculating all of the money that you’re spending on marketing as a whole. So this goes beyond campaign specific COA. This could include the cost of the marketing team, print collateral, ad spend, sales team, networking, conventions attended, and the list goes on. This is a broader, big picture KPI to see if you are getting a return on your marketing efforts as a whole.

Return on Ad Spend

Similarly to return on marketing spend, Return on Ad Spend is a broader perspective of the return on your marketing efforts based solely on your ad spend. You might add up your ad spend from social media, Google ads, print ads, or you might calculate each separately to see if your return is coming from a specific channel. There’s no industry standard for this KPI, it’s going to depend on your industry and your client base and really how much you can spend on ads.

If you’d like to talk more with us about finances as they relate to marketing, please contact us! Click on the button below, we’d be more than happy to offer you a free initial consultation to see if a financial audit might be beneficial to your organization.