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Accounting for marketing success.

Is marketing worth the money it costs? There are ways to find out.

As it already has in other business areas, accountability is fast becoming the watchword in CPA firm marketing. Partners or senior managers now demand cost-benefit analyses of their firms' marketing and media programs, just as they do for practice areas. And for the same good reasons: planning, future budget allocation and simply determining the most productive activities.

Professionals frequently become frustrated with marketing efforts because they believe marketing is or should be a science with guaranteed results. In fact, it's more of a practical art that succeeds best when firms are willing to take calculated risks. Careful tracking can enable a firm to get a better grasp of which marketing risks are most likely to pay off.

This article describes how our firm attempted to unravel the mystery of marketing accountability, showing the steps our firm used to budget, track and analyze marketing activities. As the firm's marketing director, I oversee a staff that includes two marketing coordinators, an information specialist and a database coordinator, but many of the firm's strategies can be adapted by other practitioners.



What percentage of revenues should be allocated to marketing?

Choose according to firm needs. AM&G (Altschuler, Melvoin and Glasser) allocates 2% to 2.5% of gross revenues. Suggested guidelines range anywhere from 2% to 6%, depending on the items included and the firm's marketing needs and priorities. Firms must decide if they want to finance expensive ad campaigns, marketing training for professionals and other possibilities or opt for more modest efforts.

In our budget, we include all the obvious marketing expenses such as brochures, newsletters, advertising, promotional seminars, market research, direct mail, public relations activities, etc., as well as meals, travel and entertainment for referral sources, prospects and clients; association involvement; and certain subscriptions. All marketing department personnel salaries are included. We do not include charitable gifts, even if they are client-related.

To determine each department's or industry's marketing budget, we review the area's revenue and allocate a percentage to marketing. Start-up areas and industries get a much bigger slice of the pie than do mature ones - in some cases, up to 10% of revenue. Others get from .25% to 1%, and we reserve a small amount for special opportunities. The remainder goes to firmwide marketing expenses.

We budget for various AM&G responsibility centers: divisions, departments, practice areas and industries.

How are reporting procedures developed and implemented?

Firms need a good financial software system capable of capturing and reporting on revenues and expenses for each practice area. We have a new practice management system that makes it possible for us to track and monitor our marketing expenses.

The software includes these modules:

* Time recording.

* Accounts receivable.

* Cash receipts front-end.

* Firm expenses front-end.

* Report distribution.

* On-line diary.

* On-line billing.

* Notes-reminder.

* Accounts payable.

* General ledger.

* Personnel administration.

* Marketing-mailing.

We identify marketing accounts and responsibility centers for all marketing expenses, and as an expense is incurred it is charged to the appropriate account and responsibility center. All expenses are coded by industry and type of service.

How is the budget created?

The process starts when each division, department or industry head completes a special form to budget marketing expenses. Marketing personnel meet with division directors to get their preliminary ideas and then with department heads and industry chairpeople to discuss their thoughts on what they want to do; offer advice; and give project cost estimates. They allocate their marketing dollars to the strategies they wish to pursue based on their goals and overall firm goals.

Budget information is entered into the financial system; then, as the dollars are spent, they are charged to the appropriate area. An area's revenues can be compared with expenses to determine how increased marketing expenditures have affected revenue generation.



What controls should exist?

Establish systems and procedures. As an example, any marketing-related expenses (we inform bookkeeping of what they include) must be approved by the marketing director before they can be processed, as must the use of outside marketing services from consultants, etc.

The firm also is careful not to duplicate expenditures. We have developed a database for dues and memberships, which includes firm members' names, the organizations or associations to which they belong or want to join and their level of involvement, such as committee membership or leadership positions. This enables us to maintain an up-to-date list of all association involvement firmwide and identify weak or heavy areas. The database can be sorted by individual or by type of association, such as industry, women's, etc.

Our staff information specialist also has a publications database. All requests for publications are sent to her for approval, which means we don't duplicate subscriptions, and we route printed matter to as many people as is practical. This also helps in locating particular periodicals.

How is budget adherence maintained?

Track everything possible. Tracking is time-consuming and tedious, but it's critical in locating the greatest payback. Developing and maintaining databases for tracking are necessities. Actual costs are compared with budget monthly.

Who has the last word on spending?

Give one person authority. This can be difficult. Most of the time at AM&G, the marketing director has the final word. Sometimes people cross swords over what is to be spent, but the managing partner believes it's vital to have a designated authority to control the budget. If marketing is responsible for adherence to the budget, that department must have the authority (and fortitude) to control it.



This is tough to quantify, but it's made much simpler by using the proper procedures and systems.

How are revenues linked to marketing expenses?

Track, track, track, even when there are no immediate connections. Some results are very difficult to track, such as those provided by image advertising. Others - seminars, speaking engagements, article placement, newsletters and so on - have a long-term payback. Even in developing a referral source, the cost of entertainment or meals can get very high, but it is a long-term payback and requires long-term tracking. Rarely does someone call and say, "We're calling because we saw your ad."

Even though public relations, for example, is hard to link with revenues, published articles, quotes in the media, etc., are all very important to a firm's reputation. An article or a quote may not immediately generate a client, but they all contribute to the firm's credibility.

We keep count of all articles placed, mentions in various media, etc., to track how well the firm is doing in public relations. Although we can't point directly to dollars earned because of our efforts, public relations also carries intangible benefits. Clients usually like seeing their CPAs quoted in print. When our firm was recently highlighted in Business Week, a number of clients called to say they had seen the article. This made all the partners very happy.

Other marketing costs are tracked more readily, such as telemarketing or direct mail. Again, it's more important to remember that some unmeasurable marketing expenses are absolutely essential. When New York retailer John Wanamaker was asked how he justified his store's sizable advertising budget, he said, "I know half of my advertising is a waste of money, but I don't know which half."

How is long-term value tracked?

Provide incentive for reporting and recognize efforts. Partners and other staff must be encouraged to report potentially valuable marketing activities of which the firm may be unaware. We publicize efforts such as article writing, speaking engagements, organization or committee involvement, etc., in a monthly marketing newsletter. At yearend, we prepare a summary of all marketing activities and compare it with revenue sources.

Firm members are aware that if they don't bring in business they won't become partners, so they understand the importance of taking part in marketing efforts. We provide personal marketing counseling to all managers and senior managers. Depending on realization, employees who refer clients are eligible for bonuses of up to 10% on the first-year fees and we are developing a formal system to reward employees who helped sell an engagement or helped in the proposal process.

Conduct surveys. Surveys can help determine the value of activities. We commissioned an independent benchmark study to determine our name recognition in the Chicago metropolitan area, which helped us determine the benefit of our advertising. We plan on conducting a second name recognition survey this spring. If recognition goes up, our advertising is working. The survey is broken down by industry, so we can measure results in different areas. It also includes five other CPA firms in Chicago so we can gauge ourselves against our competition.

We targeted industry advertising surveys to those businesses in which we had an important presence. Satisfaction with factors such as personal attention and range of services also can be measured in surveys.

Keep a record of where prospects originate. We have a prospect-reporting form that asks for the referral source. We use our new client-prospect database to track leads and pinpoint how we got them.

How is revenue tracked?

Develop a simple formula. Revenue can be tracked by watching client-prospect contacts, close ratio - or the number of engagements gained versus contacts made - and average sales with an equation we call "keys to revenue growth" (see exhibit 1 above).

To set priorities for a marketing activities budget, CPAs should think about the impact of an increase in client and prospect contact - or a higher close ratio - on revenue and on marketing activities.

Client contact could incorporate seminars, articles placed in various media, quotes in print or on radio or TV, lunches and entertainment. The number of client contacts can be multiplied by the partners' close ratio to find the measure of their sales skills, and then the result can be multiplied by average sales, service by service. This makes it possible to project revenue with considerable accuracy.


What are the best areas to trim? And how are budgets kept under control?

We've trimmed our budget in a number of ways:

1. Newsletters are self-mailers produced in-house and receptionists do the labeling and sorting.

2. Use of outside consultants is limited and controlled. Because requests are monitored, we usually find ways to finish projects in-house. Most public relations, for example, is handled internally. Our efforts include proposing and writing articles, issuing press releases, obtaining speaking engagements for firm members with trade and other associations, issuing an expertise directory and sponsoring charitable events.

3. Firm member training includes marketing training sessions taught in-house. The marketing department teaches a networking workshop, personal marketing planning, presentation skills, sales training and more. We also conduct marketing counseling sessions with all senior managers and those who've been partners for less than five years. We do sometimes have outside teachers, but for the most part only for partnership levels.

4. Research is conducted in-house, which saves a great deal. We recently purchased software to compile survey data and prepare reports simply and very professionally. Firms should be confident of their surveying skills before they do their own studies; for example, I have studied research and survey design and our information specialist has a background in library science. But once firms gain confidence in this area, they can offer survey engagements to clients, as we have begun to do with some success. This was an unexpected example of how our marketing expenditures helped increase revenue.

5. Advertising copy and designs are recycled and we use in-house desktop publishing. We also look for talented beginning designers who don't charge too much for their work while trying to get established.

6. When firm members attend seminars, charitable events, firm functions or other training, they are encouraged to share the information with other AM&G people to limit attendance costs.

7. We conduct joint events. We typically team with a law firm or a bank to share costs when putting on a seminar. This also offers ready access to each others' clients.

Staying on or under budget requires routine financial reporting and a watchful eye. We generate reports monthly.



What's the best way to assess marketing activities?

Create a tracking mechanism. We've devised the simple evaluation form shown in exhibit 2 on page 48, which summarizes the results of our tracking. Even if form items change from year to year, it's a terrific way to track activities and evaluate the marketing department at the same time. This form appeals to accounting minds because it's numerical and logical with limited subjectivity.

Finally, practitioners should bear in mind that everyone is a potential client and clients are sometimes found in the strangest places. A tracking system like ours, which can be modified for different needs and budgets, has helped reassure us about the merits of our marketing efforts. That reassurance has led us into new activities that have widened our client base and our name recognition.


* Accountability is fast becoming the watchword in CPA firm marketing. Partners or senior managers demand cost-benefit analyses of their firms' marketing and media programs. * One firm has had success with a five-step process that includes

1. Formalizing the marketing budget to determine the percentage of revenues allocated to marketing and reporting procedures.

2. Controlling costs through discussions with firm leaders and by assigning spending authority.

3. Determining the value of various expenditures by linking them to revenues, developing tracking value and measuring long-term value.

4. Trimming the budget based on results.

5. Evaluating the marketing function using a simple evaluation form.

COPYRIGHT 1993 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Lentini, Fern
Publication:Journal of Accountancy
Article Type:Cover Story
Date:Mar 1, 1993
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