As I spend more time thinking about developing & financing companies and less time thinking about marketing, I can't help but notice the gap between the two disciplines. Here's an attempt to bridge one of these gaps. One expression that is extremely common in the financial world is « capital allocation ».

“Capital allocation describes how businesses divide their financial resources and other sources of capital to different processes, people and projects. Overall, it is management’s goal to optimize capital allocation so that it generates as much wealth as possible for its shareholders.”

— Investopedia

Capital allocation is a simple term to help you think about the opportunity cost of the money you spend. I think it's useful to apply a capital allocator's mindset to marketing. I'll even say that during my years in advertising, I was surprised of how bad people around me thought about capital allocation.

In finance, it's easy, capital allocation is optimized for wealth generation. The objective is clear, you need to return the money. In marketing, it's less easy, capital allocation is rarely optimized for a clear objective. Because objectives are rarely defined. Or objectives are qualitative or not easily measured in the short term.

For example, you instinctively know that spending 50k to develop a microsite that will live 3 months and will be supported by 5k of media is bad capital allocation. You can do much better with 55k. But do you really if you should spend 8k on a PR firm or 4 times 2k on 4 other opportunities? Do you know if you should invest 20k to re-design your website or should you invest it elsewhere? What's the opportunity cost of that capital? Are you a good capital allocator?

Capital allocation is important when you build a business. Because your benchmark is a simple alternative: putting that money you invest in an index fund and get a small, predictable return. So you know pretty quickly if you're a good capital allocator or not.

But capital allocation is extremely important when you develop your marketing strategies. Because your benchmark is your competitor doing a much better job with a similar budget. Or generating the same results with a tenth of your budget. The tricky part is that it takes much longer to know if you're a good capital allocator in a marketing context.

Recommended podcasts: Capital Allocators; Invest like the best