In the early days of marketing, its practitioners had their heads in the clouds—it was all about the next big idea. Indeed, corporate marketing execs and their teams flew under the financial radar for years, in part because of the intrinsic difficulties measuring marketing’s impact in dollars and cents.
But today, marketing—along with the larger global economy—has been dragged back down to earth. Just like the rest of their C-level counterparts, modern-day CMOs must consider top-line growth, bottom-line benefits, and all of the financial nitty-gritty in between.
“While it's amusing to look back at the Mad Men days, when marketers pushed messages out at a mass market of consumers, today's senior-level marketers can't just rely on soft skills any more than they can rely on telling consumers to buy the brand's products,” said Dr. Marjorie Kalter, chair of the integrated marketing program at the NYU School of Continuing and Professional Studies, in an interview with CMO.com.
Faced with slashed budgets, “CMOs have no choice but to stretch their marketing dollars, make them count, and prove why those decisions are the right ones,” Lisa Arthur, CMO for marketing automation software maker Aprimo, told CMO.com.
Financial acumen is also critical to earning a permanent seat at the corporate table. “The ability to participate in and contribute to strategic discussions of growth, profitability, and return on investment is essential in today's integrated company,” said Eric Fletcher, CMO for law firm McGlinchey Stafford, in an interview with CMO.com.
That means more than just a passing understanding of the difference between accrual and cash-basis accounting or submitting invoices on time. “Successful corporate marketing leaders understand the financial implications of marketing decisions on the rest of the organization, from demand generation to spend,” said Chris Hewitt, senior director of marketing operations at software maker Lumension Security, in an interview with CMO.com. “I tell my team, ‘Create like a marketer, execute like an engineer, and measure like an accountant.’”
Those CMOs who don’t get fiscally fit will be found out—and quick. “Today's transparency in social media means that successes as well as failures are instantly announced,” Dr. Kalter said. “And they have an immediate impact not just on attitudes and awareness, but also on analysts' reports and price-per-share. CMOs aren't isolated or insulated from corporate finance.”
Introducing financial rigor to the marketing team isn’t easy, but it can be done. Here are seven steps to beefing up marketing’s financial capacity.
1. Master The ROI Calculation
“The processes that allow finance to measure, analyze, and optimize its operations can be applied to marketing to drive demand generation, branding, and positioning,” Hewitt said. Chief among the financial concepts marketers must adopt is the ROI calculation. While the return can certainly include hard and soft benefits, the key is to focus on business results like customer loyalty, price premiums, or growth in market share in addition to the marketing metrics of old, like ad spend, reach, or engagement. “CMOs need the right business metrics to prove the value of their investments and decisions,” said Aprimo’s Arthur.
Figuring out how best to connect the dots between marketing spend and revenue generation can be difficult. NYU’s Kalter suggests CMOs take a cue from their brethren in direct marketing. “Direct marketers have always been the masters of metrics, comparing the marketing allowable for acquiring a customer in every medium or channel, and then projecting the lifetime value of that customer,” Kalter said. There are more tools to help formulate marketing ROI than ever before, from modern media attribution systems that calculate the value of a follower or page view in revenue terms, to predictive modeling software that uses data on past and potential customers for target identification.
2. Hire Outside The Box
When Hewitt faced an opening for a marketing manager earlier this year, he set all the agency marketers’ resumes aside and hired a recent graduate who had studied nano-math. “While I’m a marketer by education, I believe that the discipline of marketing can be powerfully taught outside of the classroom,” Hewitt said. “With the right leadership, CMOs [can develop] a marketing organization that includes large numbers of engineers, accountants, and mathematicians. While they are learning the marketing discipline, they are returning tremendous value by creating unique [metrics] and analyzing our campaign performance.”
Kalter’s master’s candidates in integrated marketing are required to master finance before matriculation. “The CMO needs a team that understands how to meet profit and loss goals, how to execute based on results, how to build knowledge from analytics, and how to share knowledge,” Kalter said. “The successful candidate should be strategic, creative, and totally confident with the numbers.” Seeking out actual MBA holders is another method for infusing the team with fiscal know-how, according to Fenwick.
Corporate marketers should look for that same level of financial acumen in their agencies, as well, Kalter added.
Get your analytics house in order.
3. Get Serious About Data Analytics
“Whether the discussion is the role of social media, the value in mobile marketing, or interpreting competitive intelligence, the organizations that bring real analysis to the table are better able to identify the best opportunities, set priorities, execute, and win,” said Fletcher of McGlinchey Stafford.
Marketers have been incredibly innovative in introducing new metrics for marketing performance. Sometimes, they’ve been innovative to a fault. “We’re typically criticized by our nonmarketing colleagues for the processes we use in analyzing that data,” Lumension’s Hewitt said. “Often times our analysis is not consistent or structured.”
With all of the buzz about big data and the potential for marketing to integrate and analyze information from a ever-widening variety of sources, it’s critical that CMOs get their analytics houses in order to avoid seeing correlations when there are none and disappointing the company and its stakeholders. Hewitt advised opening marketing data to the whole team for new perspectives: “Create the freedom to develop and constructively challenge analysis from all levels. Analysis is not just a marketing analyst function.”
4. Adopt Corporate Metrics
“The CMO must be capable of stepping into the CEO’s shoes,” Nigel Fenwick, vice president and principal analyst with Forrester Research, told CMO.com. “To do that they must know the financial levers of the business.” Profit and loss (P&L), balance sheets, and cash flow statements all must be second nature for the marketing team.
“Knowing how the business makes money is a great way to focus efforts on areas that deliver tangible results for shareholders and stakeholders, as well as customers,” Fenwick said.
“It isn't enough to have a dashboard on your desktop,” NYU’s Dr. Kalter added. “The CMO needs to understand the implications of key performance measures across the portfolio of brands” to improve decision-making. A good first step is to go through the P&L with the marketing team each quarter. Invite senior finance leaders to deliver lunch-and-learn sessions. Smart CMOs will also tie employee performance and compensation to impact on business revenue and profitability or other key corporate performance metrics.
5. Steal From Finance
Lumension’s Hewitt developed two new marketing analytics by borrowing concepts from accounting. “I felt that we were missing a critical component of our demand-creation efforts and funnel visibility,” Hewitt said. “Consequently, I built two tools that bring precise visibility into an organization’s demand funnel.”
The first is a lead balance sheet that tracks the progress of sales leads generated within a specific time period through the demand-management process. The second is a statement of lead flows, which measures the total impact to a prospect base over a given time period through marketing and sales activities, which are treated as gains and losses would be in finance.
6. Get To Know Your CFO
A joint Forrester Research/Heidrick & Struggles survey found that 69 percent of CMOs said their relationship with the CFO was the most important in the organization. Yet the bonds between marketing and finance remain fragile. “Each dollar spent on marketing is an expense that counts against a company’s earnings,” Aprimo’s Arthur said. “This creates a natural tension between the CMO, who wants to maximize brand awareness, and the CFO, who wants to maximize the bottom line.”
But partnering with finance pays off. “[It] provides the most practical financial education and orientation possible,” McGlinchey Stafford’s Fletcher said. Cross-functional teams can increase productivity, too. But, first, marketing teams must learn to speak in financial tongues. “Every time marketing proposes a go-to-market strategy that does not have a baked-in understanding of financial implications at each turn, we might as well be delivering our presentation in Martian,” Fletcher said. “The single, fastest way for a marketer to tear down the silo is to learn the language—nuances and all—of the CFO. And as mundane and unsexy as it may be, this is accomplished through consistent dialogue about the metrics of success, the value of a customer, and the costs of reaching a market.”
Shared tools—those that help the two teams segment shared data, identify financial trends, and collaborate—also help forge a meaningful connection with finance.
7. Focus On Process
“Every CMO is first a CXO—a member of the executive leadership team responsible for business strategy and results—and secondly the leader of marketing,” Forrester’s Fenwick said. “They need to have a deeper understanding of the processes across the business.” That awareness will enable the mastery of customer data flow required to analyze marketing’s financial impact, since much of the data sits within business processes outside of marketing’s purview.
Corporate marketers must also introduce rigorous and repeatable processes internally. “There is a lot of emphasis on marketing tools—customer relationship management, marketing automation platforms, social monitoring tools—but the tools only provide promise,” Lumension’s Hewitt said. “It is the processes that we create as marketers that convert that promise into measureable results.”