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If you would like to go into more depth, read further: Companies must achieve challenging growth targets, usually without additional investments. Expenditures for sales and marketing are a considerable part of total costs. As a result, these departments face pressure due to high expectations. Unfortunately, a fact-and-numbers-based understanding is often lacking about the combined effects of individual measures and instruments in sales and marketing. That is, hardly anyone knows, for example, how much an additional salesperson, new product packaging or additional print advertising will really influence revenue. This lack of understanding results in unproductive and emotional discussions and, most of all, incorrect decisions about (re)distribution of resources and planned investments.
As a logical consequence, the hoped-for impact on sales and growth is not achieved to the expected extent, or nobody knows which actions really paid off and which ones should have been omitted. In addition, in many companies sales and marketing departments optimize their action portfolios separately from each other, which increases the risk of incorrect decisions.
Our experience shows that a holistic (across department boundaries) and fact-based approach, in which sales and marketing work together closely, brings markedly better results. To establish such an approach, the following key questions must be answered:
- How can we influence our target customers' information, purchase and use process - the customer journey?
- What levers in sales and marketing are relevant for this?
- What contribution to goal achievement does each individual sales and marketing instrument / measure make?
- How should our sales and marketing resources be (re)distributed in order to profit the most in the future or achieve the greatest return?
The initial situation: lone warriors, who are unaware
In most companies, resources are distributed separately within sales and marketing and much energy is wasted in 'budget allocation fights'. Both departments optimize their resource allocation solely based on department-specific indicators. And so it often happens that the budget from the previous year is continued more or less unchanged for the coming year - without critically investigating what has been accomplished and what has not. In addition, companies often do not know what activities and instruments contribute to achieving the growth targets, that is, what impact they have. And so decisions are made "in the gut" and based on personal experience - which is not always the best advice.
The approach: Create a shared overview, based on facts, of the relevant levers
The following ROMSI model presents an approach to changing this situation and bringing light into the darkness. ROMSI1 stands for return on marketing and sales investment. The model consists of six different elements, each of which - if properly done - generates an increase in the ROMSI
It is important to understand that this model does not depict a universal set of instructions. The specific design of the individual elements strongly depends on the company strategy, the market or the specific customer journeys. But the model delivers concrete starting points for where efforts must be made to increase ROMSI. In Area 1 'Structured Overview', the first goal is to obtain an overview of all sales and marketing activities in the entire company. What is important is to achieve a shared transparency of sales and marketing across all resource-consuming activities and instruments - e.g. also development of a new product packaging or the full costs of a salesperson.
This often generates the first 'Aha effect', since people realize that the number of instruments used - and budget items - is much larger than assumed. In Area 2 'Systematic Resource Allocation', the question is how to (re)distribute the available resources, systematically and based on facts, to the various activities so that, in the end, the greatest impact is achieved in the market. In Areas 3 and 4, the task is to 'procure' these facts for individual sales and marketing activities and, in Areas 5 and 6, for the entire portfolio of activities. In determining how to correctly design the individual activities, the effect of each individual sales and marketing instrument on the target segments should first be investigated and documented (Area 3). The effects on both sales and costs are included. This results, for example, in the valuable understanding of how sales can change if expenditures are changed for one or the other instrument.
The calculations and set-up of various scenarios are based on measurements / surveys of sales and marketing reports as well as on inputs and estimations of key persons in the company, which are crystallized out of various workshops and work meetings. This valuable knowledge must also lead to appropriate consequences, so that individual sales and marketing activities are adjusted and optimized.
But to maximize the ROMSI, it is not enough to 'only' optimize the individual activities. Since the various sales and marketing instruments influence each other, either to reinforce or to hinder, these shared effects must be considered. And so, in Area 5 of the ROMSI model, it is essential to gain knowledge of these effect interactions or existing synergies. Here, too, systematically executed market tests and scenario calculations are essential in the ideal state.
Of course, very good insights can be gained easily with a 'market impact board' (see illustration 2). To create a 'market impact board', a.) List the goals and corresponding sales and marketing activities on a large whiteboard. Then b.) Mark with arrows those points that influence each other. And finally, c.) Consider what this influence looks like and how strong it is. Even if this method creates only a qualitative, subjective estimation, valuable knowledge about the future design of the entire activity portfolio can be gained. Of course, when looking at the portfolio, all insights gained are worthless if they do not result in specific improvement measures. For that reason, Area 6 is dedicated to consistent optimization of the activity portfolio. This area ranges from simple optimization, for example, when only certain activity bundles are employed together, to complex optimization, where the optimal activities portfolio are systematically investigated and implemented in a simulation tool.
The result: well-informed (re)allocation of sales and marketing resources, and thus a higher ROMSI
Ultimately, this may result in a radical change in sales and marketing expenditures. For example, expenditures for product packaging and direct mailings may be raised, while the number of sales visits to small and unprofitable customer segments may be cut. Further, the sales team may be increased while the advertising intensity within the highly profitable customer segment is reduced. What is important is that these changes are worked out and decided together by sales and marketing.
If ROMSI is systematically performed as described, you will move from a "watering can" strategy with much wasted effort to a precise, laser-like servicing of the market. And so you will achieve a higher ROMSI with lower water-(resource) consumption.
Short test: Do these points seem familiar?
- We don't have a company-wide, clear overview of which sales and marketing instruments we use and how much we spend for each instrument.
- We don't know the real effect of many of our sales and marketing instruments nor how we can check and improve them.
- We're under pressure, and so we have to cut our expenses - but we don't know where exactly to cut or which instruments are critical for success.
- We need to increase the revenue-generating effectiveness of our sales and marketing instruments - but we don't know how to redistribute spending to achieve this.
Have you answered at least one of these questions with "yes"? Then we should talk. Alexander Vogl is looking forward to your call: +49 (0)711 76 83-220.