The Devil is in the details
Today, I asked myself which connection between brands and financial results I wanted to explore first.
Revenue, profit, margins, EBITDA, cash flows…
The good news is we’ve got options. The bad news is they all seem important in a way.
Where should I start? From revenue down to profit? The other way around? EBITDA, because it gets so much attention? Margins, because I know there’s already work on that?
I don’t know.
Let’s take a step back. Why are marketers asked to present a marketing ROI in the first place?
When they’re asking for a budget, they need to make a case for the investment: what will this money help the business achieve? Will it contribute enough to future financial performance to justify spending it here?
Hmm… this brings me back to capital budgeting. Finance already has tools for assessing investments. How are those tools being applied to marketing?
Money is limited. Companies have to decide which projects to fund. Capital budgeting provides methods for comparing those opportunities and assessing the value they’re expected to create. An introduction to capital budgeting.
Well, well, well… Let’s revisit the tools.
Three commonly used measures are payback period, internal rate of return, and net present value:
Payback period: how long it takes to recover the investment.
Internal rate of return (IRR): the discount rate at which the investment’s NPV equals zero.
Net present value (NPV): the sum of the investment’s expected cash inflows and outflows, discounted into today’s money.
Each answers a slightly different question. Payback focuses on how quickly we recover the money. IRR expresses a return as a rate. NPV estimates the value created after allowing for the required return. More on these measures.
Let’s start with NPV.
What interests me is the question it helps us ask: is this marketing investment expected to create enough financial value to justify what we spend?
That feels like a useful starting point.
So I typed “Net Present Value of Marketing Investment” into Google.
I found a definition in the Universal Marketing Dictionary. I found a “marketer’s explanation” of NPV—which was, in fact, another explanation of NPV. Then more definitions.
Okay, the formula is familiar. What I’m looking for is a worked example showing how someone gets from brand data to the cash-flow estimates behind a marketing investment’s NPV.
I checked Google Scholar and found papers on return on marketing investment that mentioned NPV. Those went onto my reading list.
Then I asked ChatGPT and Claude. Again, definitions and suggested papers, with some overlap between them.
Useful. But I was still looking for the practical part.
At that point, I hadn’t found a product or service that clearly answered my question. But checking further turned up a lead: Keen.
Keen describes a platform that forecasts marketing’s contribution to revenue, converts those contributions into cash flows, and calculates their net present value. That’s the company’s description; I haven’t tested the platform or assessed its methodology yet. But it gives me something concrete to investigate. Keen’s explanation of its approach.
And finding a tool gives me more questions.
What data does it need? How does it estimate the additional results generated by marketing? How far into the future does it look? Where do brand strength and brand measurement enter the calculation? And how practical is it for a medium-sized company?
Because that’s where I started: with brand data.
NPV needs expected cash flows. How do we get from one to the other?
The calculation needs a view of what happens with the investment and what would happen without it. It needs assumptions about the size and timing of the difference. And those assumptions need explaining too.
For the marketer who has awareness and consideration data and a CFO asking for financial impact, that’s quite a few steps to work through.
That’s where I’ll go next: how are those cash-flow estimates built, what evidence supports them, and what can a marketer do with the data they actually have?
