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We all know the episode of Friends where Phoebe tries to teach Joey to speak French, right?
If you’re not up to speed, Joey needs to learn some “dialogue en francais” for an audition but can’t nail it, completely mangles the words, and ends up looking a total fool. Also, Phoebe calls him a retard. Bit much.
If you’re too “experienced” to understand that Friends reference instead think of Officer Crabtree, the policeman in ‘Allo, Allo’. Same vibe. Same mangled language.
But why these sitcom references? Because marketers can often make themselves look a right Joey/Crabtree by not talking the right language – the language of business.
Speaking the language of business
Marketers often get trapped in a bubble of marketing centric KPIs and jargon. Whilst important to delivering effective marketing and understanding what’s working, when marketers are then let out to talk to other areas of the business they still “parlez marketing” and aren’t able to converse in terms that non-marketers understand.
Which doesn’t help other areas of the business – like sales, finance, ops and their C-suite representatives – “get” marketing and come away with a full understanding of the value marketing and marketers are adding to the business.
Side Note: For more on building the value of marketing check out our other blogs “No one cares about marketing. Here’s 3 ways YOU change that.” and/or “Did you know there are only 3 types of value?”. We like the number 3, clearly.
Get learning, kids
What can Marketers do to be able to talk “business” rather than purely marketing? Learn some of the key terms that businesses and senior decision makers care about, and then how marketing impacts them. That’s what. Think we’re teaching grandma to suck eggs here? You’d be surprised how few marketers will know all of these.
So, here’s 7 of the big business terms we think all marketers should know if they want to be taken seriously. Got any more we should add to the list? Give us a shout and we’ll add them on.
1. Gross Profit
This is your top-line finance number and one of two main calculations used to understand the high-level profitability of your business (second one coming up next, obviously).
GP is all the revenue (you know that one, right?) coming into your business minus what it costs you to make and sell your products or provide services. You’ll find it near the top of any financial statement, and it’s calculated by subtracting your Cost of Goods Sold (COGS) from your revenue.
Your COGS are things that directly relate to making/selling things. Raw materials, storage, production facilities and in many (but not all) cases people – as it’s their knowledge that creates things rather than any manufacturing process.
Want to impact Gross Profit (GP) with your marketing? Generate loads of closed deals and keep your costs associated with doing that as low as possible. Simple, right…
2. EBITDA
This is the other big measure used to understand the profitability of a company. EBITDA (or Earnings Before Interest, Tax, Depreciation, and Amortisation) and Gross Profit are both measuring the overall profitability of a business but in slightly different ways.
FYI: Amortisation is a fancy financial word that means “spreading payments over multiple periods”, if you were wondering.
EBITDA is essentially your Gross Profit minus your fixed overheads. Fixed overheads are all the stuff you’d still have to pay even if you didn’t do any business, but that you still have some control over. Like your utilities, rent, subscriptions and all that jazz.
Whilst Gross Profit measures how well a business generates profit itself, EBITDA is used to compare profitability of one business to another. That’s why you’ll often see EBITDA expressed as a ratio, measuring it against revenue. The higher the % the higher the ratio of EBITDA to Revenue, so the more profitable the business is. Once you start getting involved in board level discussions, you’ll hear a lot of talk about EBITDA.
How can you impact EBITDA as a marketer? In a similar way to how you would Gross Profit but with an eye on minimising your marketing overheads. Does everyone REALLY need their own office complete with electricity-guzzling massage chair and foot spa?
3. Net Profit
Your Net profit is then everything you’re left with once you’ve accounted for ALL the expenses of the business. This Includes the ITDA of EBITDA which your company is liable for but has little to no control over. You could call Net Profit you’re EAITDA, but that’s hard to say and would get really confusing. So no one does that.
If you’ve done your job bringing in those deals and keeping your costs down, then you’ll have helped contribute to a tidy Net Profit for your business. Simple, right…
4. Book to Bill
A book to bill (or BB) ratio is used to measure how effectively supply meets demand over a specific period of time. You can use it for individual businesses, clusters of companies, or whole industries.
You calculate it by dividing orders received by orders shipped/delivered (within a specific time period). If your BB ratio is 1 then supply exactly meets demand. Less than 1 and there may be more supply than demand (uh oh!). Greater than 1 and there may be more demand than can be supplied for (nice!). Handy to know for marketing purposes, right?
With clarity on the BB ratio and how it moves (or not) over time you can then properly align what you’re doing from a marketing perspective. Do you need to look at displacing competitors from target customers or is there unaccounted business out there waiting to be hoovered up, for example? It all feeds into the approach you need to take.
Want to have a positive impact on your companies BB ratio and ensure it’s >1? Keep building demand for your brand and propositions and then convert that into leads and won business. Simple, right…
5. LTV/CLV
We enter acronym land now. These can be used interchangeably but they’re Life-Time Value (LTV) and Customer/Client Lifetime Value (CLV). All depends on how you approach the grammar around Life-Time or Lifetime I guess.
As the names suggest they’re a measure of how much value (and that’s financial value. Not the warm, fuzzy feeling of a job well done) you get from a customer over the course of their time as a customer of yours. It’s fairly self-explanatory but important to factor into marketing strategies.
Do you focus on extracting as much value in a short lifetime with a customer or on extending the lifetime you have with customers? Ideally, you’d have a mix of both approaches across your customer base but it’s key to consider in relation to the short and long-term targets your business has so you can align your marketing activity accordingly. Simple, right…
6. MRR
This one’s tied to LTV/CLV and will be something that all SaaS marketers will know inside out, but for the non-SaaS amongst us MRR stands for Monthly Recurring Revenue. It does what it says on the tin, really. But it’s something more of us will need to be aware of especially as a greater number of sectors and products move to “as a service” models.
You clearly want to maximise total MRR but there are actually 5 components that feed into it. New MRR, Expansion MRR (from existing customers who upgrade), Reactivation MRR (from ex-customers who realise the error of their ways), Contraction MRR (lost from existing customers who downgrade), and Churned MRR (lost from those suckers who decided to go another way).
So, as a marketer you need to look at ways of maximising the first 3 whilst minimising the last 2. Do that and total MRR will steadily rise. Simple, right…
7. CapEx & OpEx
Here’s a 2-4-1 deal as they need to be talked about side by side. These stand for Capital Expense and Operational Expense and are the two ways of classifying how a business spends its money.
Spending money, using collateral or incurring debt to buy a new asset or increase the value of an existing asset? That’s CapEx. Spending money on things that “keep the lights on” and are part of the day-to-day running of the business? That’s OpEx my friend.
Pretty straight forward, and things you need to factor into your own spending. But what you also need to keep in mind is whether what you’re marketing is considered CapEx or OpEx. Because how you position and present things to market will need to be mindful of the impact it has on your customers financial position.
If you’re asking them to part with small sums of cash on a regular basis or a big sum all in one go you’ll need to make sure you take the right approach marketing-wise.
This is all so simple, right…
Armed with these 7 key business terms you’ll hopefully be able to better speak the language of business and build a clearer understanding of how they play out (both for your own business and your customers).
And you should know that when we’re saying “simple, right…” it’s done so with a wry smile on our lips. Because we know doing a lot of these things is far from “simple, right…”. But with greater awareness of how you as a marketer can impact these big things that your business (and its senior peeps) care about you’ll be in a far better position to effectively demonstrate the value you add.
