In this series of articles we want to take a look at the RTC Standard Chart of Accounts for the Home Inspection Industry. This structure is a foundational building block of our Accounting Service. We will discuss why we set up the chart of accounts the way we did and what we do with it.
Part 2 - Marketing
Marketing and business development is critical to growing any service business. The relationship between marketing spend and revenue growth would be linear in an ideal world, but of course it rarely is. Many businesses struggle to connect the dots between marketing and their financials. To help this key analysis, we break out marketing costs as one of the three main functions (along with admin and service) and subdivide costs into account-level line items.
Categorizing transactions into the proper account, and allocating payroll accurately to marketing, is the foundation to conducting accurate analysis down the road. Generally, we are able to put our experience to work and classify the vast majority of transactions by the vendor name. In cases we need more information to properly classify an expense, we obtain that information from the client.
Tracking overall marketing costs in absolute terms, as well as a percentage of income, is an important metric. We include this analysis on our graphical financial overview reports against the industry averages.
So what to do with this? Many clients become concerned if their financials differ from industry averages, but this is not necessarily a bad thing. The averages are merely there as a reference point. A leading indicator, a gauge. We need deeper analysis, at account level detail.
Often there is a perfectly reasonable explanation for a company to differ from industry averages when it comes to marketing. Is there a push to grow market share or into a new area? Is there an effort to increase digital marketing for more direct to homebuyer sales? Businesses need to maximize return on investment on marketing spend to grow efficiently and maintain a healthy net income.
When we discuss your financials and your business goals, with respect to marketing we aim to dig deep into the account and transaction level to analyze whether the marketing spend is achieving these goals, which is only possible through a chart of accounts that segregates this function, and accurate input into the financials.
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