Maximizing Marketing Economic Value Add (EVA): A Guide for Forward-Thinking CMOs

As a Chief Marketing Officer (CMO) in today’s data-driven business landscape, demonstrating the tangible value of your marketing initiatives is more crucial than ever.
While traditional metrics like ROMI (Return on Marketing Investment) have their place, CMOs today are increasingly turning to Economic Value Added (EVA) to showcase their department’s true impact on the company’s bottom line. EVA, traditionally used to measure a company’s overall financial performance, can be adapted to evaluate marketing activities with remarkable precision. Just as EVA for a business represents the residual income after accounting for shareholder value and the cost of capital employed, marketing EVA calculates the excess value created by marketing efforts beyond the invested resources.

Calculating Marketing EVA

Marketing EVA = Net Marketing Contribution – (Marketing Capital Employed × Cost of Capital)

• Net Marketing Contribution is the incremental profit generated by marketing activities such as campaigns & events.
• Marketing Capital Employed represents the resources (people and tech) allocated to marketing.
• Cost of Capital is the company’s weighted average cost of capital (WACC)

Let’s explore how this concept can be applied in practice, using the fictional company “InnoTech Solutions” as our case study. InnoTech, a rapidly growing B2B SaaS provider of health tech solutions, is preparing for an IPO and needs to demonstrate the value creation capabilities of each department, including marketing. The chart demonstrates the process of calculating marketing department’s EVA and its implications for value creation or erosion.

Now, let’s look at some fictional numbers for InnoTech Solutions to demonstrate how marketing EVA is calculated in practice:

Component	Amount (K USD)
Incremental Revenue from Marketing	3,750
Variable Costs	1,125
Net Marketing Contribution	2,625
Marketing Capital Employed	7,500
Cost of Capital (WACC)	12%
Capital Charge (Marketing Capital × WACC)	900
Marketing EVA	1,725

In this example, InnoTech Solutions’ marketing department has generated a positive EVA of 1.7M. This means that the marketing activities have created value above and beyond the cost of capital employed, demonstrating the department’s ability to contribute significantly to the company’s overall value creation.

Benefits of Implementing Marketing EVA

Implementing marketing EVA as a key performance indicator offers several benefits:

• Alignment with shareholder value: By considering the cost of capital, marketing EVA ensures that marketing activities are evaluated in terms of their contribution to overall company value.
• Resource optimization: EVA encourages marketers to be more mindful of the resources they employ, promoting efficiency and strategic allocation.
• Long-term focus: Unlike short-term metrics, EVA considers the long-term impact of marketing investments, supporting sustainable growth strategies.
• Improved decision-making: With a clearer picture of value creation, CMOs can make more informed decisions about budget allocation and campaign prioritization.
• Enhanced credibility: For companies seeking funding or preparing for an IPO, demonstrating a track record of positive marketing EVA can significantly boost investor confidence.

As InnoTech Solutions prepares for its IPO, the marketing department’s ability to consistently generate positive EVA serves as a powerful testament to its value-creation capabilities. This not only justifies past investments but also builds a strong case for future resource allocation and strategic importance within the organization.

As the business landscape continues to evolve, CMOs and marketing leaders who can effectively demonstrate their impact through EVA will be well-positioned to secure resources, influence corporate strategy, and drive sustainable growth.

In an era where marketing increasingly relies on intangible assets like brand value, customer relationships, and data insights, how can we further evolve the EVA model further to more accurately capture and quantify the long-term value creation of marketing strategies in B2B SaaS companies?

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