Truly effective marketing: No department is an island (page 1 of 2)

How does a marketer work more closely with departments like accounting? How and why should you translate words to action?

You may be thinking, "Teaming up with accounting?" Believe it or not, company's CPAs hold the key to making you a smarter, more successful marketer.

The key fact is that your accounting department may know more about your customer than you do. They might not know which demographic group a customer fits into, or to which promotions they're most likely to respond; but they do know how much a customer is buying, whether they've paid their bills on time, what it costs to market to those customers, etc. So if accounting knows so much about your customers, how do you get that information out of them to use it to do your marketing job better?

Two truths emerge: there is a great wealth of information on your customers within your company, and you don't have it. Rather discouraging, I know, but if you can get your accountants to give you their information on your customers, you can begin to take your marketing to the next level. You'll have a greater understanding of your customers, which will allow you to improve your marketing effectiveness.

To get there it's important to understand a new concept: Activity Based Costing, or, how much does it cost you to acquire and retain each of your customers. Activity based costing is an accounting term that assigns actual costs to activities. For example, if a bank cashier takes two minutes to cash a check and is paid $30 an hour, then the activity based cost of cashing a check is $1. If a customer cashes 10 checks a day, that customer costs you $10 a day. This is quite different from the simpler, easier, and largely inaccurate method known as cost allocation

In cost allocation, you assign a cost to running a bank branch. For example, assume a bank branch is six people at $40/hour, working eight hours a day. The cost allocation is six people times $40 per hour times eight hours per day equaling $1,920 a day to staff that branch. While this tells you how much staffing costs you, it gives you no insight into the cost of each transaction while, activity based costing allows you to know the exact cost to your company for a specific activity.

Assume you're a marketing manager for the credit card division of a large bank. You are running a campaign to your current customers to sign them up for a new low-interest credit card. As you begin your campaign, you know the following:

1. Only 20% of your bank's customers are profitable.
2. You don't know who those profitable customers are.
3. Your goal is to market to the profitable 20% of the customers

This is where your new-found friends in accounting come in. You need to know one thing right away: Who among my customers are the profitable ones?

Under the cost allocation model, you would be up nights trying to find profitable customers by looking at a variety of variables. But there is rarely a pattern you can discern, and if your company uses cost allocation, you don't know what individual customer interactions are costing you. You only know what resources your company allocated to staff all customer interactions with all customers.

With Activity Based Costing, and a tight partnership with the accounting department, you can figure out the cost of each activity (some accounting departments actually have people devoted to developing costing figures). Since each customer activity is recorded, then attributed its actual cost, it's easy to figure out the total cost for each customer.