Marketing spending is critical. It directly affects both corporate revenues and earnings. That's why companies need to treat the marketing budget as a precious and scarce resource. Figuring out how to generate the highest possible long-term returns on how and where marketing spends money should be a priority for business performance management (BPM) project leaders, but it's frequently neglected because marketing is typically viewed as out of bounds for BPM. It should be included.

The marketing and sales functions have long understood that to generate maximum financial return for their company from their budgeted spending, they need to determine which customers they should spend the most money attracting, retaining, growing, and recovering. In contrast, the finance and accounting function -- which usually spearheads companywide performance management projects -- has traditionally focused on cost reduction as the sole road to higher profits in the marketing realm.

The problem stems from managerial accounting systems' concentration of attention on product or service-line costs (which are often flawed by arbitrary, broad, average-based cost allocations). An analysis with an expanded scope would break down costs by customer. But financial accounting regulations require line expenses below the gross margin -- including costs related to distribution channels, sales, and marketing -- to be recognized during the period in which they were incurred. They cannot be capitalized and stored in the balance sheet the way product costs can be stored as inventories. However, just because expenses must be classified that way to comply with external financial reporting regulations doesn't mean that customer data can't be used differently in internal managerial accounting to support the analysis and decision-making of managers and employee teams.

Accountants should begin applying the same costing principles they use for product costing -- including activity-based costing principles -- to types of channels and types of customers so that there is visibility into all traceable and assignable costs. The finance department should also be involved in customer analytics activities in order to move customer relationship management to the next level. The day is coming when the CFO will need to turn his or her attention from the operations functions and cost controls to the support of decisions being made by the chief marketing officer and sales director about which kinds of customers and sales prospects they should focus on. Companies that fail to consider customer value from a rigorous finance and accounting perspective are losing an important opportunity to improve the company's economic value over the long term.

But the "why" behind customer value is not the main problem. It is the "how" that most frequently gets overlooked.