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Why Marketing Contributes to a Terrible Spend Culture

02/22/2018 By

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“What’s the difference between an accountant and a lawyer? The accountant actually knows he’s boring.” Overheard at the marketing team’s closed door meeting while, outside, the finance team scrambles its way through the month-end close.

Notwithstanding the obvious differences in personality, the mutual look of incomprehension when the CMO and CFO try to explain to each other what they actually do, marketing and finance have never been particularly pally.

It’s not just the stark difference in their background, it’s not even the daunting task of proving ROI on an ingenious marketing campaign to a number-crunching CFO, or the danger in committing company funds to some radical idea based on a marketer’s sudden, Steve Jobsian flash of insight into the minds of customers. The things that can cause an ugly spat between marketing and finance are actually much more prosaic.

Let me explain: it’s not that marketing spends too much, or even that marketing is burning cash recklessly — it’s not unheard of for marketers to drain half their annual budget on creatives in the first quarter itself, but finance has, for the most part, learned to grudgingly accept such indiscretions as part and parcel of working with marketers.

No, tensions between marketing and finance actually stem from record-keeping, and the lack thereof.

Let’s consider a simple example: imagine you’re a controller at an up-and-coming SaaS company. To make it a more vivid picture, let’s say your company is based out of San Francisco, where all departments work in the same office space. Because yours is a SaaS company, your CapEx is limited, and, as your company is trying to quickly obtain more market share, marketing makes up a huge chunk of your annual expenditure.

It’s early April, and you, along with your CFO, have just finished compiling your Q1 report for the company’s board of investors. It’s a tense time already, and you’re in no mood for April Fool’s jokes. But, out of nowhere, you receive a $60,000 invoice from the Wall Street Journal.

You check with the marketing manager, and he echoes you worst fears. Indeed, the marketing team had bought some ad space on the Wall Street Journal in January, and you realize, with a sinking feeling, that the invoice is legitimate.

You begin making more serious inquiries. “What’s the problem?” says the marketing manager, “We committed $250,000 to online ads this year. It’s written down in our budget. Our ad spend is still within its budget. Can’t you just adjust your numbers and report the $60,000 for April instead?”

Briefly, you entertain the idea of rallying a mob of accountants to toss him off from the terrace. But an accountant can’t be given to such flights of fancy. You now tell him that the problem is that accounting is not as simple as he thinks he is.

You try to explain the differences between accrual and cash-based accounting — the fact that you, as a rule, have to account for that $60,000 invoice on the very month the ad space was used, not when you actually pay for the ad space. You know you can go on, and on with this, but none of it matters, because financial reporting is not a part of the marketer’s job description.

Why This Happens

One of the golden rules of accrual accounting is that if your company buys something, you report it almost immediately; you can’t wait for the invoice and then report the spend. In other words, you can’t rely on the invoice to track how much you spent earlier. Because, by then, it may be too late. Accountants know this all too well.

Where marketing spending — particularly, the aforementioned example of the $60,000 invoice — gets complicated is that the bulk of it comprises services rendered, not physical goods. This is a point of great significance because money spent on physical goods is just easier to keep track of and report. Traditionally, companies have either tried to maintain spreadsheets on orders placed, or used all manner of purchasing and accounting solutions to ensure that finance gets all of the information about things ordered the moment they are received by the company. 

Received, here, is the keyword. Finance will go ahead and account for something ordered only when it is sure that it has been received in good condition by the employee who placed the order. Receive is therefore also the stage, or the crucial link between a company’s accountants and the purchasing manager (or whosoever made the purchase), that makes sure that finance doesn’t miss any information about an order that has been placed so that it isn’t surprised when an invoice shows up; and, more crucially, that it can account for a spend before its respective invoice shows up.

The problem with marketing spending is that it’s hard to relay this information to finance because there’s no process of actually Receiving the services. Marketing has, at least over the last decade or so, gone almost exclusively online, and, in most SaaS companies, digital marketing budgets far exceed any money set aside for offline marketing. Unlike physical goods (like a laptop for a new employee, or new tools and supplies for the factory foreman), services like Google AdWords, pay-per-click ads, freelance work provided by animators, writers, or contract work given to SEO experts and event managers cannot actually be received, so to speak, in the way that physical goods can be.

Neither can finance assume what was spent for every given month and incorporates such charges into their reports without waiting to receive the invoice. Unlike subscription-based services like software or server fees, which have fixed rates, most Google AdWords and online ads function on a pay-per-click basis; what this means is that you could be spending $400 in January, and $700 in March.

The same condition affects your dealings with contractors or freelancers — you can commission a writer to spend 60 hours on writing a whitepaper for your product, but if he spends 40 hours in January, and 20 hours in February, the finance team needs to have the visibility to account for the 40 hours for their January month-end report, instead of accounting for 60 hours in their February month-end report.

It’s unrealistic to expect marketers to show proficiency in accounting or purchasing. And if a company’s accounting and purchasing systems do not intuitively understand this, it should be expect to be blindsided by even more invoices.

That’s why, we, at Procurify, built a a ridiculously easy-to-use solution that helps marketing move fast in their purchases while maintaining visibility and consolidation of purchases for finance. Across Silicon Valley, and beyond, hundreds of companies are using our software to control and track their marketing spending. Find out how you can track your marketing spend with Procurify, contact us today.