How Does Good Marketing Affect the Financial Growth and Stability of a Company?
In this week’s surge, we invite finance expert and friend of the show Michael Hsu to discuss the relationship between marketing and finances and how they support one another.
Bridging the Gap Between Marketing and Finance
Hello everybody. This week we have a special guest. His name is Michael Hsu and Michael is a Financial wingman. We will be talking about the effects of marketing on your actual books and what it does for your financials in the company.
So obviously I brought on Michael to speak on this week’s Surge because Michael is an expert on financial forecasting and anything that has to do with financials of any organization. We do marketing here at Optimum7, and marketing is really, really essential for us.
So I wanted to hear from Michael’s perspective, how marketing affects the actual financial health of a company. So when you speak to different people and when you consult them, Michael, you have to look at the different departments. What is the biggest issue that you see with company’s marketing or anything that they do with their sales?
So it’s very interesting. People think financials and marketing, cannot be any different. But actually, they are two ends of the entire business cycle. If you think about it, we look at business in three departments, marketing and sales, production and then financials and management. So by the time you get to financials, by the time it gets to us, it’s already too late. It’s a result. Right? You can’t really change anything on your result. You can actually only change your production, how effective you are at making stuff or your sales and marketing.
So marketing is where it all starts. It’s kind of your top line, right? That’s what we call it. It’s where all the money comes in. At the top line of your financials is revenue. And where does the revenue come from? Revenue comes from sales and comes from marketing. I don’t think enough people realize that or recognize that because on a financial statement, you see marketing at the bottom, you know, below the line and almost towards the end, and people think, “Oh, it’s an expense.” It’s not an expense, really, it’s not an expense, it’s actually an investment to drive your entire operation.
Treating Marketing as a Financial Investment
Yeah. So marketing is not an expense, it’s an investment. Now when you speak to companies and when you are, and again, marketing, of course, is a lagging effect. It has to be a strategy, it has to be a process. When you see that somebody has weak marketing and when you see that somebody has weak sales or they have no idea what they have to do to bring their revenue up, bring their profits up, what do you tell them?
I see a lot of them. I see a lot with them, exactly what you said, they’re afraid to spend. When a company does not make money, they’re afraid to spend. And this is what I educate my clients on. I say, “Look, a dollar spent in marketing is a dollar invested. You have to spend money to make money.” Okay?
But you can’t go out and just pick up any marketing agencies out there, and there’s a lot, right? There’s a lot of marketing agencies out there, they go, “Oh well, you can’t measure the success of marketing and it’s gonna take time.” Well, actually you can and you should, right? So I always tell my client, “Look, we have to spend.” It’s not that, can I afford it? It’s can you afford not to afford it? Right? So we asked them to figure out, and we help them with budgeting and forecasting to help them figure out what can I get away with.
Right? Is it $10,000 a month? Is it $20,000 a month that I need to spend on marketing? And then more importantly, what do I want out of it? Every dollar spent on marketing, I expect $5, $10, $15 in return. You have to start thinking in terms of that way to be able to get your business engine going. Because the marketing is again, marketing, if you spent $1 on marketing today, you might not see the effects of it three months from now, six months from now, from 12 months from now, and you have to know that. I have to factor in how much I spend and how much time I need to see that dollar comes back to me. And you have to track it, you have to track it.
So I always find the best relationship, when your finance team can actually work with your marketing team, right, to figure that out. If I have $50,000 to spend and I need that to come back to me in three months, you might want to focus on something that is short-term, below the funnel stuff, right, in marketing. If I have a lot more money or I have longer to wait, if my company is healthy, then perhaps I can do something that’s more long-term.
Are You Overpaying (or Underpaying) for Marketing?
Do you see any clients or do you have any clients, where you look at their financials, do you ever find yourself saying, “Hey, you guys are spending way too much on marketing?” Or is it always under?
Some, but not because they’re spending too much on marketing, it’s because they’re wasting marketing dollars, and not seen the effects of it. All right? So I actually have a client who spent 1.6 million in marketing. They didn’t make $1.6 million, and their marketing agencies are telling them, “Oh, it’s gonna take time.” And I’m going, “We don’t have time.” Right?
So having that conversation, they ended up actually switching to a different company. They still spent 1.6 million, but then they changed up the strategy where most of that budget, I think 800, 900,000 of those budgets are below the funnel stuff. Right? And then they saw that effect. So then they could afford the 1.6, just not with the first marketing agency.
Again, marketing needs to be done as an investment, but I have one last question for you, Michael. So when you see that a company is in financial trouble, when they don’t have enough cash flow, when they need to borrow money, when they are not able to pay their bills on time, or you see that it’s going down the drain.
When you look at a company and when you see that the financials are going down the drain, that they might not be able to afford their payroll in the next three months or they might be in trouble or they’re not having enough sales coming in, do you actually go back and suggest that they spend some money on marketing and how do you make that call?
So that’s a tough question because it’s different scenarios, right? With every company, however, I’m going to go back to marketing and sales being the top of the funnel. If you’re not bringing money into your business machine, there’s no business. I always say the first rule of business is to make money.
You gotta make more money. Otherwise, it’s a hobby.
Right? So when a company that you just described like that, I always advise them to buckle down and figure out a plan. And it could be to get more money from outside investors to get more cash. However, cash doesn’t solve your business problem, which is to make revenue. Marketing and sales do that, right? So my advisory will be to go out and get money, right? Borrow, beg and steal, and get enough money so you can make a plan and say, “Okay, I got six months.”
But at that point, your marketing has to be really tied close to sales. It’s gotta be really bound on the funnel stuff because you don’t have time. You don’t have time to do content marketing or social media or anything higher up, top of the funnel stuff.
But yes, I would advise them to make more money. Right? And then how do you make money? Sales and marketing. That’s the two ways.
This is great advice for everybody who says that they don’t need to do marketing or everybody that says, “Hey, I don’t have competitors.” You don’t know what’s going to happen within your business in the next six to 12 months. And when you realize, and when you go to a financial consultant like Michael, it could already be too late.
So start paying attention to your marketing today, your sales funnel, your inbound leads, your incoming leads, and create a strategy and plan today because marketing has a lagging effect. You don’t want to be in a situation like Michael stated, where you are at the last end of your rope and you don’t have any room to go. And at that point, it’s going to be too late. Then you’re going to have to borrow money or maybe steal money. So we’ll talk to you guys next week. Thank you.
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