The idea of managing marketing as a profit center is gaining momentum with increasing digital transformation and the technologization of marketing (MarTech). This requires a changed mindset, new skills and mastery of the tools.
The idea of marketing as a profit center has been around for a few years. With increasing digital transformation and advanced marketing technologies (MarTech), the idea is gaining momentum. With digital business models, value creation is becoming more fragmented. Offerings in the form of content, products or services create value at multiple points along the sales funnel. This makes the marketing perspective broader, even end-to-end. MarTech offers opportunities for new value creation in marketing. This requires a changed mindset, new skills, and mastery of the tools.
Marketing as Cost vs. Profit Center
Marketing departments are traditionally managed as cost centers. Marketing managers are given a budget that they want to use as efficiently as possible. A typical activity that generates costs without direct revenue is, for example, market research.
If, on the other hand, marketing activities are to generate revenue or profit, marketing becomes a revenue or profit center. New possibilities with MarTech promote this change. This is because marketing can increasingly bring value in its own right and thus justifies direct payment.
Marketing that brings profit
Let’s think of Red Bull, for example. What does Red Bull actually sell? A beverage? Not only: The brand is known for its events. These have long since ceased to be mere marketing campaigns for the drink. No, it is a revenue stream in its own right.
We can also start smaller. Let’s think, for example, of complementary offers to core products and services that cost a small contribution. For example, the events mentioned or contributions for participation in a community. Digital offers are more flexible and easier to scale for marketing.
Such marketing campaigns may be cost-neutral, so you have drawn attention to yourself without using the budget. The campaign may even be worthwhile and bring in more money than was spent, i.e. a profit.
From Cost To Profit Center: two approaches in marketing
On the way to becoming a profit center, we can start by better reporting the value creation that takes place in marketing. Marketing performance tools provide more accurate data and so indicators can be calculated more precisely. Marketing’s share of sales becomes more visible. Strictly speaking, this is not yet a profit center, because marketing still operates in great dependence on sales and product management.
In addition, marketing as a profit can offer its own additional value to the core product or service with its own profitable content, products or services. A marketing profit center can still fulfill the requirements of product management and sales. However, it proactively develops its own offerings and can also implement its own, different business models. These proactive activities can then in turn provide input for the further development of the core products.
In this context, it can also be observed that the roles in product development, sales or go-to-market, and marketing are merging or interdisciplinary teams are being formed across the classic silos, which together are responsible for an entire sales funnel end-to-end as a value stream.
Changing requirements, new marketing skills & mindset
The change from cost to profit center or even to a shared value stream requires rethinking on several levels:
From communication to content
Communication as a profile has long meant more than “nicely formulating” the ideas of others. Under the heading of content, communication content can offer its own added value and thus also be monetized. Bloggers have led the way, and companies are following suit with their own portals and platforms. One example of this is the recipe communities of food retailers.
From marketing to product
Selling something instead of marketing it means that product thinking finds its way into marketing. Value is created, not just transported along the entire sales funnel. This often includes the development of further offers around the core offer, e.g. as a trip wire, i.e. as a comparatively lower-priced preceding offer.
From budget to investment
In addition to budget control, entrepreneurial thinking is increasingly required. Analytics tools make it possible to monitor the effectiveness and efficiency of one’s own actions more and more effectively. We can see where the money is well spent. For marketing managers, marketing-specific target figures and KPIs are being expanded to include overall business figures and indicators. From marketing metrics to business metrics, so to speak, as illustrated by customer lifetime value, for example.
Can marketing agencies become profit centers?
While marketing organizations (can) establish proximity to other areas, agencies are often bought in as external “creative minds” and “executing hands”. As such, they have less insight into other areas in the company and can have less influence on sales and product. MarTech is leading to significant changes in agency profiles:
From Creative to Analytical
The evolution goes from creative freedom to prototyping and testing, analysis, evaluation and adaptation. Creative bets can still be made, but as a test, with clear hypotheses that are clearly tested. Creativity does not become less important, but it must be paired with analytics.
Marketing teams and agencies can better demonstrate their value proposition thanks to MarTech by mastering the basics in performance marketing. In addition, a change in thinking is required among marketing managers. In addition to a wide range of analytics tools, they also need to respond with appropriate offers. Customers should be offered value along the entire sales funnel. Marketing automation tools offer comprehensive tracking with individual dashboards as well as support in placing the appropriate offers.
Additional resource: 5 Reasons When It’s Worth Getting Started With Marketing Automation