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Selling your marketing plan.

Many marketing plans fail before they ever get started because they never start at all. While the plan may be sound, it fails in the boardroom because it is not communicated properly to top management.

Ironically, marketing people, who pride themselves on their communication skills, frequently do a poor job of presenting marketing plans and concepts to top management.

Too often, sales and marketing people find it difficult to translate the essentials of their marketing proposals into language that is compatible with top management thinking and company goals.

This communication failure may not be critical in times of high casting demand, but it certainly is today in our super-competitive industry. Now, more than ever, marketing people must be sure they can define the strategic value of their marketing efforts in terms of the profit and loss statement, and that they understand the criteria used in management decisions. The three key elements with which they should be concerned are: return on investment (ROI), growth and risk.

ROI is pretty familiar territory: profit divided by investment. In our industry, this percentage rate generally runs well above even good prevailing interest rates. When related to facilities or marketing expenditures, the ROI should be expressed in terms of discounted cash flow (DCF) return on investment.

This shows management what the payback term is by computing the rate of return, which is the actual net cash flow back (after-tax earnings plus depreciation) discounted annually until the present worth of the discounted cash flow back over the life of the expenditure is equal to its cost.

Growth is more than just the rate of increase in profits; it also is the magnitude of total dollars of profit. In overall marketing strategy, that is a significant factor, since it is commonly used by banks and analysis to evaluate the company's potential.

Risk represents what the company can lose and what the effect of this loss might be. When applied to a new facility, major piece of equipment or a marketing program, it attempts to evaluate upside potential against downside loss and the effect such losses would have on the financial health of the company. Each risk situation is unique. Thus, it is impossible to generalize on the best method to evaluate risk.

Selling Your Program

With these three criteria in mind, how does the marketing or sales manager do a better job of selling his program to decision-makers?

First, strategic values should be emphasized: the view from the P & L statement. Major cash components for most small and medium-size foundries are labor and materials, which is why our industry is dominated by smaller producers. When they compete with smaller producers, large foundries don't perform well in many instances because depreciation has to be added as a significant cost component. This puts them at a competitive disadvantage in many lower-volume situations where the basic competitive force is still price.

Effective marketing programs can play an important strategic role in avoiding profitless price competition. When either real or perceived functional differences are established by the marketing effort, price no longer becomes the major determinant in the sale.

Second, stress profitability when presenting a marketing plan to management. Show how much volume and overall profitability will increase as a result of a more intensive marketing effort. Present in financial terms the effect of program and budget changes. This is the kind of reasoning management understands and appreciates.

Although the marketing budget has a one-year impact, the program has a residual carryover effect into future years. So, try to carry forward your payback calculations over the planning horizon.

Third, use DCF when presenting the ROI on your market plan. It is important to realize the basic worth of the business is measured by the flow of cash into and out of the business--not by accounting values. And, it is important to account for the timing of these cash flows. After all, a dollar two years from now will not be worth nearly as much as it is today.

The basic DCF formula is: Cash Flow = profit after taxes, plus depreciation, minus investment in plant, minus investment in working capital.

When applying the formula in detail, first calculate profit after taxes. Then add back depreciation, which is an accounting expense and not a real cash expense. Since no cash actually leaves the business, it is added to profit in figuring cash inflows.

Next, subtract cash expenditures for plant, equipment and working capital (inventories and receivables). Calculate the cash flow for each year of the market planning horizon.

Sound strange? Perhaps. However, we have merely used the techniques of financial people and decision criteria favored by management to determine the dimensions of a marketing budget. And, hopefully, we have made it easier to sell the marketing plan to top management.
COPYRIGHT 1993 American Foundry Society, Inc.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Warden, T. Jerry
Publication:Modern Casting
Date:Oct 1, 1993
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